Natural Gas Weather Play

NOAA Weather (weather.gov) provides free GFS forecasts. Weather Underground and Tropical Tidbits offer free model visualization. For ECMWF, basic data is available at ecmwf.int, though detailed data requires subscription.

GFS updates 4 times daily at 0Z, 6Z, 12Z, 18Z UTC (8 AM/PM and 2 AM/PM SGT). ECMWF updates twice daily at 0Z, 12Z UTC. The 0Z and 12Z runs are most important and cause most price movement.

HDD (Heating Degree Days) measures cold: 65°F minus average temp. Higher HDD = colder = more heating demand = bullish. CDD (Cooling Degree Days) measures heat: average temp minus 65°F. Higher CDD = hotter = more cooling demand = bullish in summer.

Natural gas is the primary heating fuel in the US and powers air conditioning (via gas-fired electricity). Oil has more diverse uses globally. Natural gas demand changes immediately with temperature, while oil demand is more stable.

Weather trades require even smaller positions than momentum trades (0.75% risk with 3.5× ATR stops). A S$10,000+ account is recommended. Smaller accounts will have position sizes that may be below minimum lot sizes.

Signs include: price stops rising despite continued extreme forecast, volume declining after initial spike, RSI showing divergence (price higher but RSI lower), extended forecast starting to moderate. When premium exhausts, consider exiting or fading.

Model disagreement signals uncertainty. Either skip the trade or use 50% of normal position size. Wait for next model run to see if agreement emerges. Divergence often resolves within 24-48 hours.

NOAA provides pre-calculated population-weighted national HDD/CDD. For manual calculation, weight each region's degree days by population percentage: East = ~35%, Midwest = ~25%, South = ~30%, West = ~10%. Sum weighted values.

Close or reduce weather positions before Thursday EIA storage report. Storage data can override weather premium. After report settles (15-30 min), reassess if weather thesis still valid. Weather and storage can reinforce or conflict.

Once weather premium appears exhausted (signs above), consider short positions expecting price to decline toward pre-weather levels. Use tight stops - premium can re-inflate if forecast extends. Best entries on first model run showing moderation.

For serious weather traders, yes. Professional services provide: gas-weighted degree days (more relevant than raw HDD), probability forecasts, real-time alerts on model changes, and historical data. Cost is $200-500+/month but can pay for itself with better signals.

Components: (1) Automated weather data collection at model run times, (2) HDD/CDD calculation and comparison to prior run, (3) Model agreement scoring (GFS vs ECMWF), (4) Threshold-based signal generation, (5) Seasonal filters, (6) Position sizing based on signal strength, (7) Time-based and forecast-based exit logic.

Options when: model agreement is low (defined risk protects against flip), event is major but uncertain (straddles), or holding through multiple model runs. CFDs when: model agreement is high, thesis is strong, and you can actively manage position as forecasts evolve.

Monitor European (TTF-relevant) and Asian (JKM-relevant) weather alongside US. Cold Europe increases LNG export demand from US. Cold Asia same. Global cold scenario = highest conviction US long. Track all three and weight US most heavily for Henry Hub positions.

Challenges: Historical weather data expensive, market structure changed (LNG exports), climate trends shift baselines. Solutions: Focus on recent 3-5 years, adjust for LNG export era, test across multiple winters/summers, use walk-forward optimization.