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Last update: October 17, 2017, 7:39 EDT
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Description

Weather Anomaly Indicator (WAI) tracks numerical weather prediction systems, adjusts temperature data with historical consumption levels and compares the results with historical benchmarks. Implied Balance Indicator (IBI) incorporates the results from WAI and sets them against the latest supply estimates (production) and external trade dynamics (exports and imports).

Unlike, BLUE “Fair Value” ModelIBI does not focus on the price itself, but rather attempts to shed light on the near-term change in price. When IBI is in a positive territory (above 0), it means that market balance is loose (there is more supply than there is demand and natural gas consumption is probably running below 5-year average). When IBI is in a negative territory (below 0), it means that the market balance is tight (there is more demand than there is supply and natural gas consumption is probably running above 5-year average).

As far as the price is concerned, the direction and change in IBI is as important as its actual position. When IBI is rising, the price is falling. When IBI is falling, the price tends to rise. The longer IBI stays below/above 0, the stronger the price reaction.

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.

As an example, see the commentary published on March 3, 2016. Notice how IBI was projected to decline in the second half of March and into April, indicating a bullish trend ahead. Since March 3, natural gas price increased by more than 16% (April 2016 contract).

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