Natural gas trading outlook: futures headed for weekly gain

Natural gas futures were in bear territory during early trade in Europe today, extending Thursdays slump. The US reported a largely expected, though still quite big, weekly natural gas storage build, projecting a near-complete replenishment of inventories by November, after the last brutally cold winter drained supplies of the heating fuel.

Front-month natural gas futures for settlement in October on the New York Mercantile Exchange traded at $3.893 per million British thermal units (mBtu) at 9:08 GMT, down 0.43% for the day. Prices ranged from $3.891 to $3.922 per mBtu. The contract is headed for a ~0.8% weekly gain, despite losing 2.57% yesterday.

Despite a series of bearish weekly reports in the US, and weather patterns suggesting comfortable overall temps, traders bought into some early winter heating hype, bumping up the front-month contract to a two-week high on Wednesday. A pipeline incident also offered some support, though worries have now subsided, while the cool has now also fizzled, and with further pressure from the US weekly build, markets corrected the price increase to near start-of-the-week levels.

“Until weather patterns turn convincingly colder, we see little reason to buy into early winter season hype, especially with two months still to go in the build season,” analysts at NatGasWeather.com wrote in a note to clients today. “Expect deficits to continue making up ground in steady chunks for the next three next weeks, and potentially a while longer.”

The US Energy Information Administration (EIA) reported the build at natural gas inventories for the week ended September 12th to be quite larger than expected at 90 billion cubic feet (Bcf), which was also the the lower end of analysts’ forecasts. The figure also represents the 22nd straight week of above-average injections and narrowed the deficit to the same-week 5-year average to just 13.3% at 2.891 trillion cubic feet of natural gas in storage. The series also logs the highest 20-week build in more than 20 years.

“Temperatures in the 70s and 80s will rule. The US [with the brief exception of the Northeast] should require limited heating or cooling demand in this warm early fall pattern,” NatGasWeather.com wrote.

US weather outlook

Weather patterns project waning cold over the Midwest and Northeast this weekend, as high pressure over the South breaks north to deplete any cool remnants of the latest Canadian system. Monday is already looking at another system tracking from Canada, though it will not impact temperatures by too much.

“If the markets are looking for a reason to say weather is less bearish any time in the next two weeks, it would probably be from this weather system even though it’s really not that
cold,” NatGasWeather.com analysts wrote. “Temperatures will warm into the 70s and lower 80s for much of the Midwest within a day or two after it departs, leading to low national nat gas demand.”

Southern California is relieved by cooler onshore drifts, after nearing record temps a few days back, while Texas remains pinned by the remains of tropical system Odile and more storms and heavy rains. US-wide cooling demand will be moderate-to-low.

New York will have a cooler Friday, with temps reaching no higher than the upper 60s, according to AccuWeather.com. Readings will, however, climb for a nice and warm weekend. Next week will set off with a mostly seasonal Monday, before temps drop a few later on. Chicago temps will be in a tight, mostly seasonal 61-70 range today. Saturday will feature strong storms and rising temps, while Sunday will be slightly cooler than normal and sunny.

Down South, a strong system continues bearing down on Houston with heavy rains and thunderstorms, as temps range between the usual for the season 73 and 85 degrees Fahrenheit. The weekend will be slightly warmer, though bound with more rains and storms. Over on the West Coast, Los Angeles is set for a moderately warm and pleasant Friday and weekend, with readings at 65-81. Next week will be largely seasonal, though later on more heat will again bump temps to above 90.

Technical support and resistance levels

According to Binary Tribune’s daily analysis, October natural gas futures’ central pivot point stands at $3.952. In case the contract penetrates the first resistance level at $4.042 per million British thermal units, it will encounter next resistance at $4.088. If breached, upside movement will probably attempt to advance to $4.178 per mBtu.

If the energy source drops below its first support level at $3.906 per mBtu, it will next see support at $3.816. If the second key support zone is breached, the power-station fuel’s downward movement may extend to $3.770 per mBtu.