November natural gas prices settled up over 2.5% on the day today, though prices traded in a narrow 6.9-cent range through the trading day. After a significant gap up last evening, prices attempted to close the gap early this afternoon before rallying into the settle.

The vast majority of the gains on the day came at the front of the strip, with some later winter contracts not even seeing half the gains seen at the front of the strip.

The result is that the H/J spread did not move significantly on the day, indicating that the market is not yet all that concerned about storage levels heading into the winter heating demand season, even as significant cold is expected to close out October.

Confidence in this medium-term cold shot is quite high, with it a virtual guarantee that for at least a few days heating demand will get above seasonal averages nationally. For example, afternoon American GFS ensemble guidance shows significantly below average temperatures across much of the eastern half of the country for this coming Sunday.

Even though the cold has not moved H/J significantly, it has continued to rally X/Z, which is now approaching the levels it sat at a week and a half ago when the first signs of cold were being priced in.

All this indicates that the natural gas market is taking the cold in the medium-range seriously as it boosts prices near the front of the strip, but that it does not see it materially changing balances or stockpiles enough for a significant re-pricing of the strip. Accordingly, natural gas bulls better hope either that the cold comes as expected and sticks around, or that the natural gas market is mis-pricing the impact of the first strong cold shot of the season, as it may take additional cold to truly break this market higher.

In our Afternoon Update due out over the next hour we will break down the upcoming weather pattern and the expected impact on the natural gas market, outlining where we would expect prices to progress through the week and where the key forecast risks are.