Alrightee, folks; this post kicks off a themed week here on the burrito. First up, we are going to take a look at the weirdness of NYMEX natural gas, so who better to compare it to than the king of oddness himself, Dwight Schrute.
‘Yes I have acted before. I was in a production of Oklahoma in the seventh grade. I played the part of Mutey, the mailman. They had too many kids so they made up roles like that… I was good.’
Dwight is very odd. So is natural gas. Last Thursday’s weekly storage number was the third in a row which came in more bullish than expected (-209 Bcf versus -196 Bcf consensus), yet prices once again reacted oddly and sold off (after an initial 17 millisecond rally). The below 5-minute chart for the prompt month highlights the price action on Thursday, with the initial spike and ensuing slide:
The only defense for the bearish reaction was that the bullish number was already ’baked in the cake’, as the inclement weather of the previous week halted production and provoked blackouts. But in all fairness, a number 7% larger than expected should have either provoked some sort of rally, or a preemption of it should have spurred a bout of selling earlier in the week.
‘Mose is my cousin, and he lives here. He will always be my best friend. Unless things go well with Ryan today in which case I won’t hang out with Mose so much anymore.’
Dwight Schrute skips swiftly from the sublime to the ridiculous, and back again. He initially appears calm and rational, but in reality is erratic and volatile (…like the natural gas market), while also being a beet farmer, living with his cousin, and descended from goat-farmers and Nazis (err, not like the natural gas market). And just as natural gas has loftier ambitions but is unable to achieve them, so does he (Exhibit 1: Assistant to the Regional Manager). Nonetheless; both have a lot more going on than meets the eye (and I don’t just mean concealed weapons). Last Thursday (Feb 10th) saw trading in natural gas futures reach a record volume, with 526,280 contracts changing hands. Meanwhile, the January average daily volume was 25% higher than that of the previous January. While natural gas is happy to take the back seat (a penchant of Dwights as it is the safest place) in Commodityworld™ behind headline-grabbing crude oil, it is still breaking records nonetheless.
‘Jim Halpert: Dwight says that he actually doesn’t know one single fact about bear attacks.
Dwight Schrute: No Jim, tell him that bears can climb faster than they can run.’
Finally, both natural gas and Dwight have something else in common – they are both fascinated by bears. Well, kind of. Dwight likes to hunt them; natural gas is the hunted. As referenced recently on the burrito, short futures positions on natural gas (those betting on prices falling) are climbing towards record highs, as strong supply and storage are ushering the forward curve lower. In fact, hedge funds have just raised bearish bets on natural gas to their highest level since December 2008. Hark, the chart below highlights how prices out to 2014 are making record lows, and continuing to trundle lower:
So there we are. Say what you will about natural gas and Dwight Schrute – they may be excruciating and uncomfortable to watch at times, but they are difficult not to be fixated with. More Office-type shenanigans will follow in the coming days; in the meantime; think you aren’t Dwight Schrute? Prove it!