Natural gas trading outlook: futures edge up after last week’s slump

Natural gas futures were slightly higher during early trade in Europe today, as investors correct last weeks massive losses. Weather patterns project a quite cool latter half of this week for the US, spelling the start of several bearish weeks for the blue fuel.

Front-month natural gas futures for settlement in October on the New York Mercantile Exchange traded at $3.796 per million British thermal units (mBtu) at 8:31 GMT, up 0.08% for the day. Prices ranged from a monthly low of $3.761 to $3.806 per mBtu. The blue fuel was down ~7% for the week, as trading closed last Friday.

“Much larger than normal builds will line up for weeks to come and should provide strong bearish weather headwinds,” analysts at NatGasWeather.com wrote in a note to clients today. “Our bias remains to the downside and we still expect $3.75 to again be tested and likely taken out.”

Investors were weary of cool Canadian system, set to splash into the central US this week, eliminating much of the remaining cooling demand, and even spurring some localized early heating.

The net result of the system will likely be a much larger-than-average build for US natural gas inventories for next week, spelling the start of a bearish several weeks for the blue fuel, with low demand and big builds.

The US Energy Information Administration (EIA) reported last Thursday that US natural gas stockpiles added 79 billion cubic feet (Bcf) in the week ended August 29th, exceeding analysts’ projections for a build in the range of 72-76 bcf. At 2.709 trillion cubic feet, storage levels narrowed the deficit to the five-year average of the respective week to 15.4%, as inventories logged the twentieth consecutive week of above-average builds.

Analysts now project injections to come in excess of 90-100 Bcf, as the Fall shoulder season, generally September and early October, allow for massive gains for inventories, as the summer heat wanes and the winter cold has just not arrived yet.

US weather outlook

NatGasWeather.com projected a quite cool Canadian system tracking through the central and eastern US starting Wednesday this week, bringing temps down some 10-20 degrees over the Midwest, the Plains and later on, the East Coast. Temperature troughs could reach as low as 30-40 Fahrenheit, which could very well spur heating in some areas. The far South and the West will see mostly seasonal weather, and overall cooling demand will be dropping from moderate to low.

“An impressive Canadian weather system … will ease cooling demand significantly, which will likely last into early fall,” NatGasWeather.com wrote. “However, since temperatures will be very favorable for 100+ Bcf weekly nat gas builds, we think weather patterns will be considered quite bearish for much of September and potentially into October.”

New York is set for an average, rather pleasant day, with temperatures ranging 63-77 degrees Fahrenheit, according to AccuWeather.com. Readings will slightly drop tomorrow, before rebounding to average through on Wednesday. Thursday through Saturday it will be mostly seasonal temps, before readings drop to several below average on Sunday and into next week. Chicago is also forecast to have a normal day, temps between 61 and 74 degrees. Through to Wednesday it will be mostly seasonal, before on Thursday readings drop some 10 degrees, and a further 5-10 will be dropped on Friday, for a quite chilly Friday and weekend.

Down South, Houston weather will also be normal, temperatures ranging from 75-91 degrees, before just slightly climbing through midweek. Over on the West Coast, Los Angeles is having a cloudy, though warm Monday, before temps drop a few degrees to enter average range for the rest of the week.

Technical support and resistance levels

According to Binary Tribune’s daily analysis, October natural gas futures’ central pivot point stands at $3.807. In case the contract penetrates the first resistance level at $3.834 per million British thermal units, it will encounter next resistance at $3.874. If breached, upside movement will probably attempt to advance to $3.901 per mBtu.

If the energy source drops below its first support level at $3.767 per mBtu, it will next see support at $3.740. If the second key support zone is breached, the power-station fuel’s downward movement may extend to $3.767 per mBtu.

In weekly terms, the central pivot point is at $3.884. The three key resistance levels are as follows: R1 – $3.987, R2 – $4.181, R3 – $4.284. The three key support levels are: S1 – $3.690, S2 – $3.587, S3 – $3.393.