December 4, 2017

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The Times They Are A Changin: Powerful Plains Storm To Usher In Arctic Airmass And Prompt Mid-Week Surge In Natural Gas Demand; Oil Investor Sentiment Reaches 2017 Highs While Natural Gas Sentiment Plumbs Yearly Low; Oil & Natural Gas Portfolio Reaches 2017 High--Help Support Celsius Energy & Gain Premium Access

6:00 AM EDT, Monday, December 4, 2017
Natural gas rebounded from Thursday's rout with a 4 cent or 1.2% gain on Friday, settling at $3.06/MMBTU, albeit well below the intraday high of $3.12/MMBTU. The week was defined by exceptional volatility in which the commodity rallied nearly 10% during the first two days of the week--bolstered by December-to-January contract rollover--before plunging 5% on Thursday and then rebounding on Friday. This is the sort of volatility seen during the winter months when investors are laser-focused on a temperature forecast calling for an anomalous event, such as an arctic outbreak, that varies widely model run to model run.. Crude oil, meanwhile, rose 96 cents or 1.7% on Friday to settle at $58.36/barrel, down 1% on the week, its largest weekly loss since early October.

My Oil & Natural Portfolio rose 0.5% on the week despite very defensive positioning to boost gains since May 1 to +31.5%, or 54% annualized, a new 2017 high. The Figure to the right plots portfolio returns since May 1, highlighting the steady growth in the fund. Thank you to all who have subscribed to the site over the past 6 months to gain access to this portfolio, with the current tally up to 94 subscribers, including 21 new subscribers during the month of November alone. I greatly appreciate your support. For current subscribers, I have updated the site password for December and you should have received an email with the new password. If you are unable to log in, please email me at CelsiusEnergyFM@gmail.com.

As I've stated before, it is my goal to keep all of the data and projections on CelsiusEnergy freely available. Given the site costs and time requirement to update and manage the site, the only way that I am able to do this is through your support via subscribing. My goal by the end of the year is to exceed 100 subscribers--just 6 new subscribers above the current tally. As a reminder, if you pledge $25/month or more, you gain password-protected access to my portfolio holdings, trades, and twice-weekly investing commentaries that focus on price analysis and trading strategy, compared to the publicly available Daily Commentaries which focus more on supply/demand fundamentals. If you have found the site to be useful over the past year, I ask you to consider pledging your support, even if it is only for a month. And because your pledges aren't charged until the first day of the month, if you sign up now, you effectively get an entire month free. I have big plans for this site and am excited to continue battling the markets alongside you. For more on signing up, please click HERE or the link at the top of the homepage. And for subscribers, please see today's Investing Commentary, along with my current holdings and recent trades HERE

As a reminder, submissions for Week 5 of my Natural Gas Storage Contest are open through tomorrow (Tuesday) at 5pm EDT. Entrants will be submitting their projection for the natural gas storage week of November 25-December 1 that ended last Friday and the closing price of natural gas (January 2018 front month contract) this Thursday, the day the EIA releases its official report for that storage week. The contest now has over 100 participants competing for $400 in prizes. Submit early for a higher bonus multiple, or wait until the deadline for higher confidence in your picks. Click HERE to read contest rules, see the latest rankings and to submit your picks.

Despite the sharp rally in natural gas prices early last week, sentiment among investors actually worsened. On Friday, the Commodity Futures Trading Commission (CFTC) released its weekly report detailing money manager natural gas holdings on the NYMEX through Tuesday, November 28. The CFTC announced that open short contracts rose 47,479 to 239,121, just shy of the 52-week high 246,312. And despite the rally, long positions fell by -4,715 contracts to 259,785. Natural gas long and short positions among money managers are shown in the Figure to the right. As this figure shows, long holdings have been essentially flat near 260,000 open contracts since late June while it has been short holdings that have been much more volatile, with a nearly 70,000 contract rise in the past two weeks alone. As a result of this increased short interest, the Bullish Sentiment--the fraction of all open contracts held long--tumbled by 6% last week to just 52%, now 11% below the 52-week average and just 1% above the 52-week low. On the one hand, this suggests that the recent rally may not be able to sustain itself and natural gas may be in line for a pullback, especially if the warming trend in the mid-term forecast over the weekend continues. Longer-term, however, this suggests a surplus of shorts piled into the trade. If the forecast turns consistently colder and supply/demand balance tightens up, this could prompt a short squeeze leading to an exaggerated rally. Click HERE for more on natural gas investor holdings. Oil Bullish sentiment, on the other hand, is near a 52-week high at a whopping 91%, up 24% year-over-year and 14% above the 52-week average. Open long positions stand at just 442,394 while shorts are just 44,288. Opposite to natural gas, this suggests an overly-crowded long trade and could support a sell-off once the current rally runs out of steam and record production becomes more of a bearish factor. Click HERE for more on crude oil investor positions.

Over the weekend, natural gas demand slumped as a nearly coast-to-coast area of unseasonably warm temperatures driven by a persistent zonal flow pattern bringing a mild Pacific airmass well inland suppressed any and all heating demand. Daily withdrawals fell from -3 BCF/day on Saturday to a flat +0 BCF/day on Sunday--exceptionally bearish versus the 5-year average -11 BCF/day draw. This warmth will persist again today across the eastern 2/3rds of the nation to start the work week, even as changes loom on the horizon. Highs will be in the low-to-mid 70s from Dallas to Little Rock to Atlanta, 15F warmer than normal. Further north, Des Moines will reach the upper 60s, St Louis the low 70s and Chicago near 60F, all 25F-30F warmer than normal. Along the Eastern Seaboard, temperatures will be more seasonal with Washington, Philadelphia, and New York City all reaching the low-to-mid 50s today, 5F-10F warmer than normal. Across the far northern Plains, however, an arctic cold front will make its presence known. Minneapolis will wake up to the low 50s this morning--25F warmer than normal--but this potent arctic cold front associated with a classic late-Fall storm will result in a non-diurnal temperature pattern with readings dropping to near 35F by sunset. Further west across western Minnesota and the Dakotas, Winter Storm and Blizzard Warnings are up for several hours of heavy, wet, wind-driven snow on the backside of this storm. However, thanks to the excessive warmth across the Midwest, Southeast, and Mid-Atlantic, the forecast mean population-weighted nationwide temperature today will actually rise nearly 1F despite the Plains blizzard to 54.1F, an enormous 9.9F warmer than normal. Total Degree Days will fall to 12.2 TDDs today, 9.5 TDDs fewer than normal and the 6th fewest for December 4 in the last 37 years. Click HERE for more on today's temperature and degree day outlook. Based on this forecast and early-cycle pipeline data, I am projected another excessively bearish +0 BCF/day daily storage injection today, 11 BCF bearish versus the 5-year average. By the end of the day today, natural gas inventories will be around 3680 BCF as the storage deficit versus the storage surplus falls under -20 BCF, down more than 100 BCF from the intra-week peak of -130 BCF from 2 weeks ago. Click HERE for more on today's daily storage projection and intraday inventories.

Natural gas demand will soar the remainder of the week as the aforementioned arctic cold front rapidly slices southeastward. By Tuesday, the front will stretch from Houston to Cincinnati to Detroit and by Wednesday it will clear the East Coast. The cold will then amplify to wrap up the week with the forecast mean population-weighted nationwide temperature falling to around 42.3F by Thursday, down more than 11F from Monday. By late in the week, there is increasing evidence among the computer models that the first true Nor'Easter of the season could bring a swath of wet snow from Washington, DC all the way to Boston, although this forecast continues to evolve.

As a result of the surge of cold air, natural gas daily withdrawals will climb to around -4 BCF/day on Tuesday before spiking to -15 BCF/day on Wednesday and peaking over -20 BCF on Thursday and Friday, double the 5-year average. Projected daily natural gas storage withdrawals for December 2-8 are shown in the Figure to the right. However, thanks to the unseasonably mild start to the week, I am still projecting a net bearish weekly storage withdrawal. For the week of December 2-8, I am projecting a preliminary -66 BCF withdrawal which, while the largest of the 2017-2017 season so far, would still be 12 BCF bearish versus the 5-year average and a whopping 66 BCF bearish versus last year's -132 BCF draw. A -66 BCF withdrawal would be the third largest in the last 5-years behind that -132 BCF withdrawal in 2016 and 2013's -139 BCF draw. Longer term, a -66 BCF doesn't hold up as well and would be the 7th most bearish withdrawal in the 23 years since 1994, during which time withdrawals have been as low a -182 BCF in 2005. This remains a preliminary projection and will be revised over the next week as finalized temperature and pipeline data is integrated into my model. The EIA will release its official Storage Report for this week on Thursday, December 14. Click HERE for full details on my projection.

Longer term, the models remain supportive for further intrusions of arctic air through mid-December. However, over the weekend, the mid-term temperature outlook has trended milder and there is an increasing divergence between the warmer GFS model and the ECMWF model, which is still calling for a colder outlook. And with the temperature-independent supply/demand balance loosening, natural gas could come back under pressure, even as the commodity remains comfortably undervalued long term according to my Fair Price Model. Click HERE for more on the long-term temperature outlook. Regardless of how the final forecast for the next few weeks shakes out, one thing is for certain. Thanks to a tight market and a stretch of cold weather this time last year, the year-over-year storage deficit is likely to contract dramatically over the next 4 storage weeks, even if the ECMWF forecast wins out over the GFS. At this time, I am projecting that the year-over-year deficit will fall by around 220 BCF, which would take it all the way down to -115 BCF, the smallest in over a year.