Any energy traders here?

Gas Trader here and was bored before going back to work ‘for real’ so maybe I can answer some questions. Like all trading I imagine - Gas Trading is part art part science - and there is no dead set formula, there are trades like mar/apr that many people gravitate too - but managing your risk on trading Mar/Apr depends on other macroeconomic events in the gas overall gas market.

A little NG 101 for the others in this thread - NG is a seasonal commodity mainly used for residential heating and power generation (most seasonal components). Demand is higher in the winter strip (nov-march) compared to summer months (april-october), this is what creates the seasonality of the NG forward curve.

First as foremost natural gas is a storage based market and Storage has a Iron Grip in the gas market. The NG markets needs to clear supply and demand daily and storage operators are the incremental buyer/seller that balances the market. It creates demand in the summer to fill the caverns and supply in the winter when the facilities withdraw. Spot price and the forwards move around to incentive storage players to participate in the market by injecting/withdrawing.

This Summer, Cash was strong relative to winter and did not incentivize storage players to inject. The market generally built this narrative in its mind that production growth will continue to grow at an astonishing pace and the market will “no longer need storage”. This caused us to come out of the summer with historical low storage inventory. As early cold started + low inventories, fundamental traders realized that the probability of “running out of storage” by end of winter was significantly higher compared to previous years.
I remember you mentioned in a other thread on ‘how to hedge’ or something like that. Lets look into the Mar/Apr spread

H/J spread is essentially a “running out of storage risk premium”. In a mild winter with ample production and storage this spread can trade flat or even invert negative. However if there is a risk that storage could run out you will see a larger premium in the winter months and thus this spread will blow out.

One could think that: if storage is low, then there will be a bigger demand for gas to fill storage in the summer and summer may catch a bid. However this year – it looks like the market believes that production growth will offset any extra summer demand and this is a reason why while winter rallied, summer basically stayed flat.
Now if you are forced to sell some HJ and you are looking for a hedge, buying Cal 19 (depending on how you delta it) will reduce a portion of your march short, make you longer April and give you some winter & summer length. I don’t like holding summer length as evident in the rally – summer is dislocated and if no winter shows up you might got uber fucked if not only is there enough production but you don’t need to fill as much anymore. (essentially you are trading outrights – not a hedge) So really if your just a market maker trying to Hegde in Dec you should have bought some Jan, Febs in this case as a hedge.

Now reading this thread it sounds like you were long HJ

Now over the holidays H/J got crushed. Why? Well at the End of Dec the market could see what early Jan weather looks like – and guess what – all the mets are wrong (surprise !?) and Jan is looking warmer than normal. Well all of a sudden even if Feb is Cold, your risk of running out of storage and grandma in Wisconsin freezing is no longer there and the market has raced to the door to erode the winter risk premium.

If I was long H/J – and wanted to be greedy and keep holding – I would have probably loaded up on some puts as insurance

If you are trading NG and are not calculating seasonal storage balances – you are the dumb money.

Obviously this is written in hindsight, dont @ me