Infinity Insights - Volume 11, Issue 6
AT-A-GLANCE SUMMARY
Spot month NYMEX natural gas traded between 2.75 and 3.00 while extreme cold began its march south.
SEE Polar Vortex commentary below
SUMMARY OF THE LAST WEEK IN CHARTS
Spot month natural gas (March) support is 2.75 then 2.40 with resistance at 3.00. Balance of calendar year 2021 finds support at 2.85 with resistance at 3.10. Calendar year 2022 has support at 2.55 with resistance at 2.80.
Roadmap
NYMEX natural gas spot month (March) ended higher by $0.049 at $2.912.
Balance of Calendar 2021
Balance of Calendar 2021 ended up ≈$00325 at $2.9875.
Calendar 2022
Calendar 2022 settled at $2.72, ≈$0.0175 better.
OUR TAKE ON THE MARKET
NYMEX Natural Gas
Spot month NYMEX natural gas traded between 2.75 and 3.00 while the upcoming extreme cold began its march south. Attempts at breaching the highs have been unsuccessful to date. Open interest has risen. There appears to be pent up pressure waiting for direction. Compounding the situation is the approaching expiration of the March contract. What happens next should be volatile.
As the commentary below regarding polar vortexes mentions, run-ups and sell-offs are tricky. When does the “freezer” empty? Our client base is hopefully already locked in economic positions. If not, current circumstances make decisions complicated.
WHOLESALE POWER
ERCOT
Demand has increased with cold weather. Heat rates are not changing dramatically but real-time pricing (LMP) is. Weather events are the nemesis of low prices due to incremental demand. It’s the price one pays for the historic cost advantage.
PJM
Prices firmed with weather demand.
Polar Vortex
A polar vortex is a persistent, large-scale, upper-level low-pressure area, less than 1,000 kilometers (620 miles) in diameter, that rotates counter-clockwise at the North Pole and clockwise at the Sout Pole (called a cyclone in both cases), i.e., both polar vortices rotate eastward around the poles. The vortices weaken and strengthen from year to year. As with other cyclones, their rotation is driven by the Coriolis effect.
The polar vortex was first described as early as 1853. The phenomenon's sudden stratospheric warming (SSW) develops during the winter in the Northern Hemisphere and was discovered in 1952 with radiosonde observations at altitudes higher than 20 km. The phenomenon was mentioned frequently in the news and weather media in the cold North American winter of 2013-2014, popularizing the term as an explanation of very cold temperatures.
https://en.wikipedia.org/wiki/Polar_vortex
The current extreme cold being experienced by most of the Continental U.S. is the result of the polar vortex movement. It is an extraordinary event that carries consequences attached to the intensity and duration of the incursion. They are not frequent but meaningful when they occur. Our experience with polar vortexes is intended to provide insight into what happens when and for how long.
In 1994, an incursion of the polar vortex brought record cold that persisted, driving heating usage to record levels. Back then, we were introduced to the term by Tom Skilling of WGN Weather (Chicago). We found then and continue to find his expertise illuminating. The term polar vortex was not as universally known so education was welcomed.
The analogy was of a deep freezer of cold in the Siberian region that was driven east and south by meteorological forces. Temperatures were extreme. Trading such an event was tricky. Positions that were entered at the hint of onset had the advantage over those that joined the fray during the up movement. Over-staying one’s welcome was dangerous as prices drop quicker than they rose. Experience found that when the freezer empties, it’s gone and will stay that way until new cold is captured. Quick feet helped success.
The importance of recognizing this pattern will help procurers of energy for timing purposes as well as avoidance of panic. High prices can produce fear that overrides judgment. It’s hard to remember your purpose was to drain the swamp when you’re knee-deep in alligators.
Stay Safe!