Natural gas trading outlook: futures slide amid mild short-term weather forecasts

Natural gas fell for the fourth time in five days, reversing last weeks advance, as short-term forecasts for overall mild weather across the US set the stage for more bigger-than-average inventory builds.

On the New York Mercantile Exchange, natural gas for delivery in November slid 3.27% to $3.907 per million British thermal units by 13:22 GMT, having shifted in a daily range between $4.000 and $3.891 per mBtu. The energy source rose to a three-month high last Wednesday and settled the previous week 0.4% higher.

Market players continued to digest last weeks stockpiles data. The power-station fuel plunged last Thursday after the Energy Information Administration reported that US natural gas storage expanded by 112 billion cubic feet in the week ended September 26th, exceeding a projected gain in the range of 105-109 billion cubic feet. The build was the twenty-fourth straight bigger-than-average injection, and narrowed the deficit to the five-year average to 11.4%, down from 55% in March.

At 3 100 bcf, nationwide inventories were 10.7% lower from last year’s 3 473 bcf during the comparable period. According to the government agency, supplies are anticipated to reach 3 477 billion cubic feet through the end of October.

The recent comfortable readings are projected to lead to another quite larger than the average build due to be reported this Thursday. According to analysts preliminary estimates, the government agency will likely report a build of 114 billion cubic feet in the week ended October 3rd, exceeding last years 91-bcf injection during the comparable week and the five-year average increase of 84 billion cubic feet.

However, the following reports are expected to register leaner builds as cooler weather makes due through the northern US. A set of cooler Canadian systems will be tracking in quick succession through the third week of October, with each tapping progressively more of the very cold, Arctic air over northern Canada. While its too early to call winter, the pattern will provide significant upward pressure on natural gas prices.

“Additional weather systems should follow through the third week of October, while likely getting progressively colder and more intimidating,” analysts at NatGasWeather.com wrote on Friday. ”We need to keep watching intently to see when these cool blasts turn into cold outbreaks, as we aren’t far off.”

Short-term outlook

In the short-term, temperatures across the Midwest will range, with central and western Kansas seeing highs in the lower 80s, while readings from the Dakotas to the central parts of Illinois, Indiana and Ohio will peak out at the cooler 50s and 60s. The Northeast will enjoy warmer temperatures, with afternoon highs in the 60s from West Virginia to New England, while New York will enjoy readings in the 70s.

Down the South, warmer conditions will set up during the first half of the week following a cool weekend, with parts of the region expected to reach highs into the higher 80s and mid-90s. Severe thunderstorms, coupled with strong winds, hail and isolated tornadoes may occur in northern Mississippi, northern Alabama, Tennessee and eastern Arkansas.

To the West, Arizona, Nevada, Oregon, California, New Mexico and eastern Washington should see highs in the 80s and mid-90s, while temperatures across the remainder of the region will likely max out in the upper 60s and 70s. By Wednesday, readings are expected to peak in the 70s and 80s throughout the entire region.

Pivot points

According to Binary Tribune’s daily analysis for Monday, November natural gas futures’ central pivot point stands at $4.010. In case the contract penetrates the first resistance level at $4.076 per million British thermal units, it will encounter next resistance at $4.112. If breached, upside movement will probably attempt to advance to $4.178 per mBtu.

Having already penetrated the first support level at $3.974 per mBtu and the second at $3.908, the power-station fuel’s downward movement may extend to $3.872 per mBtu.

In weekly terms, the central pivot point is at $4.044. The three key resistance levels are as follows: R1 – $4.179, R2 – $4.320, R3 – $4.455. The three key support levels are: S1 – $3.903, S2 – $3.768, S3 – $3.627.