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Market Balance Model 2 (daily)


Last update: December 12, 2017, 3:37 EST
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Description

Market Balance Model 2 (MBM) is the most sophisticated gravity model. It takes into account all the fundamental factors than have a potential to influence the price of natural gas. Model inputs include: the amount of gas in storage, future weather conditions, historical consumption and production levels as well as external trade dynamics (imports and exports). 

Left axis is inverted. Model curves (Fundamental SupportSeasonal EquilibriumTREND) indicate if the market balance is loosening (curves moving down, located above zero on the chart) or tightening (curves moving up, located below zero on the chart). As a general rule, upward moving curves are associated with rising prices, while downward moving curves are associated with falling prices. Therefore, model curves project the likely direction for the price, not the price level.

The signal is the strongest when all curves are in agreement. When TREND curve is moving down and is located below the SE curve, then there is likely to be a strong bearish development. When TREND curve is moving up and is located above the SE curve, then there is likely to be a strong bullish development. When TREND curve is between the FS and SE curves, then the signal is unstable and market dynamic may change rapidly. Remember, that markets are forward-looking, so price action often precedes the fundamental trends. It is also very important to keep in mind the futures curve when making trading decisions.

Updated every weekday by 9 AM Eastern time.

Source: U.S. Energy Information Administration, NOAA National Weather Service / Climate Prediction Center, CME Group, Bluegold Research estimates and calculations

Definitions

  • Natgas Futures Price is derived from the continuation chart of the Henry Hub NYMEX Natural Gas Prompt Month Futures Contract (note, that expiration events at the end of the month can disturb the view).
  • Forward Curve - the latest Henry Hub NYMEX Natural Gas forward curve
  • Fundamental Support (FS) - measures the intensity of key market variables - such as, national consumption and dry gas production.
  • Seasonal Equilibrium (SE) - determines the "status" of the overall Supply/Demand Balance in relation to its seasonally adjusted long-term average.
  • TREND - a composite algorithm of all indicators.

Model Performance in 2016

Below are scatter plots of model curves vs natural gas price with coefficients of determination (R2) for each curve. 

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