Natural gas trading outlook: futures hover near 1-month low as freeze proves elusive

Natural gas swung between gains and losses on Monday, hovering near Thursdays 1-month low, as weather forecasts called for some pockets of cool air across the US but the lack of freeze in the states of highest natural gas consumption kept bearish sentiment in control of the market.

On the New York Mercantile Exchange, November natural gas traded at $3.859 per million British thermal units at 12:42 GMT, up 0.36% on the day. Prices held in a daily range of $3.874 – $3.820. The power-station fuel settled at $3.859 on Friday, closing the week 4.5% lower.

According to NatGasWeather.com, heating demand over the next seven days will be moderate compared to normal. A strong weather system will trek across the central and eastern US over the next several days, bringing showers, thunderstorms and below-normal temperatures. It will even push into the South, bringing heavy showers and thunderstorms.

As previously projected, the eastern US will set off the week with above-average temperatures reaching into the lowers 70s. Once the aforementioned weather system tracks across the Midwest and Northeast, followed by additional cool blasts, overnight lows in the regions will drop into the 30s and 40s, inducing moderate heating demand. However, each of these weather systems will not be significant enough to bring widespread freezing temperatures, thus limiting heating demand.

Meanwhile, above-average readings across the far southern US will push highs into the upper 80s, stoking late season cooling demand. The weather system currently hovering over the central US will bring some cooling deep into Texas, but due to its fast-moving nature, temperatures are bound to go back up almost immediately.

Next week, a large number of weather systems will bring showers and thunderstorms, maintaining temperatures across the Midwest and Northeast at below-seasonal levels. Cooler air may also push deep into the Southeast. Meanwhile, the southern and the western parts of the country, including the plains, will remain at or little above normal temperatures.

According to AccuWeather.com, the high in New York on October 16th will be 72 degrees Fahrenheit, 8 above average, before dropping to 59 degrees on October 21st-22nd, 3 below normal. Chicago will range between 64 and 48 degrees on October 17th, compared to the seasonal 62-45. Highs are expected to drop to as much as 57 degrees on October 21st, with lows at 46 degrees, before falling to 52 degrees on October 25th, 7 below usual.

To the South, Houston will see temperatures maxing out at 85 degrees through October 17th, compared to the average of 81, followed by a slight cooling to 76 degrees on October 21st-22nd. On the West Coast, highs in Los Angeles will drop to 77 degrees on October 17th, 1 beneath the average, and will range between 78-80 degrees through October 22nd.

Supply data

Prices slid to the lowest in a month on Thursday after the Energy Information Administration reported that US natural gas inventories rose by 105 billion cubic feet (bcf) in the week ended October 3rd, largely in line with analysts’ expectations for a jump by 105-110 bcf. This was the 25th straight weekly above-average build.

Total gas held in US storage hubs now amounted to 3.205 trillion cubic feet, which was 10.1% below year-ago levels and 10.5% beneath the five-year average of 3.583 trillion, compared to a 55% deficit at the beginning of the replenishment season in April. According to the EIA, inventories are expected to rise to 3.532 trillion cubic feet by the end of October.

This weeks supply data is projected to show a build of 84-89 billion cubic feet, which, if confirmed, would be the closest net injection to the average in 26 weeks.

“It’s important to note average weekly builds will start dropping off next week as the second shoulder season comes to an end and its imperative weather patterns trend colder to keep pace,” NatGasWeather.com analysts said in a note. “Right now this doesn’t look likely to happen, meaning additional gains on deficits should be expected going into early November after this week.”

Additionally, data by the US Commodities Futures Trading Commission showed on Friday that hedge funds and money managers cut their net-long positions on natural gas in the week through October 7th to 6 288 futures and options combined, down from 26 166 a week earlier.

Pivot points

According to Binary Tribune’s daily analysis for Monday, November natural gas futures’ central pivot point stands at $3.860. In case the contract penetrates the first resistance level at $3.887 per million British thermal units, it will encounter next resistance at $3.915. If breached, upside movement may attempt to advance to $3.942 per mBtu.

If the energy source drops below its first support level at $3.832 per mBtu, it will next see support at $3.805. If the second key support zone is breached, the power-station fuel’s downward movement may extend to $3.777 per mBtu.

In weekly terms, the central pivot point is at $3.891. The three key resistance levels are as follows: R1 – $3.968, R2 – $4.076, R3 – $4.153. The three key support levels are: S1 – $3.783, S2 – $3.706, S3 – $3.598.