photo credit- Michael Panik

It's Cold Outside- Advisory Cold!

The unofficial start of winter in the world of electricity operations is ISO cold weather advisories. MISO has issued an advisory for the weekend as temperatures will struggle to get above zero in some places. Operationally these are the kids of days that provide challenges and we hear terms like well head freeze off and constraints.

Given the cold, day ahead LMP markets are looking like winter is starting, but the natural gas and electricity futures market is acting like it already knows if Phil is going to see his shadow in February. The natural gas market volatility this week would make a crypto currency or 90s tech stock blush. More about that below.

Natural Gas Market Commentary

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A week ago, it looked like natural gas futures might never stop going up. Today, it looks like they might go to zero. Such is the volatile early winter in the natural gas market. As I write this on Friday morning, the prompt-month January 2026 contract is trading near $4.10 per MMBtu. A week ago, at this instant, that same contract was screaming higher toward an intraday peak just below $5.50 per MMBtu. This dramatic about-face is ostensibly being driven by forecasts for at least two weeks of mild weather following the two-plus weeks of colder-than-normal weather that have defined the season to date. The recent cold is expected to reach a crescendo this weekend, with a quick but intense blast of arctic air pushing into the Upper Midwest before moving toward the Mid-Atlantic and Northeast in the following days.

Despite the highest demand of the season on tap in the five-day period, the market is behaving as if winter is over. However, just as a very cold start to December didn’t mean that the entire winter was going to be exceptionally frigid, a mild finish to the month doesn’t define the rest of the season either. In fact, the setup that allows pent-up arctic air to collect and push down into the U.S. is still in place. It just looks like near-term conditions are going to help keep that air confined to Canada for the time being.

So now the market is falling. Sharply. Anyone who got long or was forced out of shorts late last week has egg on their face, while those holding new short positions look like geniuses. How long will this sentiment last? Probably at least until model runs start bringing at least a sniff of cold back into the fray. Maybe January runs into psychological support near $4.00 per MMBtu. In any case, I believe that the smart money is on continued volatility – that works in both directions – until further notice. The bulk of winter is still very much in the forefront, and the roller coaster is not over yet.

In fundamental news, the EIA showed the first significant storage withdrawal of the season in Thursday’s report, with a 177-Bcf draw covering the week ended December 5. This is the first in what will likely be a series of three outsized storage draws that will likely bring inventories back to a small deficit to the five-year average. While the upcoming warm stretch will allow inventories to play catch up before the end of the year, the small storage cushion will be all but evaporated heading into the peak winter season. Yet another reason why seasonal risk is far from over.

Cocktail Corner

Watching the gas market this week reminded us of market volatility which reminded us of stock markets. Thirty-eight years ago this week, the movie that some say normalized speculation, Wall Street was released. The safe bet is, the Oliver Stone character Gordon Gekko has been quoted on trading desks by multiple factors over Ben Graham or Warren Buffett. It is said Stone was trying to create a character that represented the greed of the 80s, but instead created an idol every business MBA kid aspired to.

This weekend at the company or friend gathering when someone asks you about anything investing, just whisper "Blue Horseshoe loves Anacott Steel". If they get it, they get it.