Natural gas trading outlook: futures slump on bearish EIA report

Natural gas futures slumped during midday trade in Europe today, after the EIA reported natural gas inventories had added more than expected last week, signaling growing supply-demand disbalance as the market heads into Fall shoulder season.

Front-month natural gas futures for settlement in October on the New York Mercantile Exchange traded at $3.838 per million British thermal units (mBtu) at 14:39 GMT, down 2.93% for the day. Prices ranged from $3.837 to $3.963 per mBtu. The contract closed Wednesday’s session down 0.75%, after adding ~5% over the previous two.

The US Energy Information Administration (EIA) reported natural gas inventories had added a bulky 92 billion cubic feet (Bcf), well above expected 84-88 Bcf, logging the 21st straight week of above-average builds. The deficit to the 5-year average total for the reviewed week was narrowed to 14.2% for a figure of 2.801 trillion cubic feet.

The blue fuel was pressured earlier by a cool Canadian system already tracking deep into the central US, bringing temperature troughs as low as 30-40 Fahrenheit at places. These places, however, are only in lightly populated regions, and will likely induce only minor heating demand. More importantly, the system will kill much of the cooling demand over the South in the coming days, bearing up natgas players. Meanwhile, the northern Midwest and the Northeast will also have quite cooler than normal temps for a significant time as reinforcing cool blasts draw track through the Great Lakes next week.

This week’s cold spell will likely have a positive impact on upcoming natgas inventory builds, further adding to builds momentum, as the market enters Fall shoulder season.

“Next week will likely again come in under 100 Bcf,” analysts at NatGasWeather.com wrote in a note to clients today. “But there should be some fairly hefty 100+ Bcf builds to follow.”