Natural gas trading outlook: futures hit 11-month before EIA stockpiles report

Natural gas fell to the lowest since November as weather forecasts provided no concrete data for early-November widespread freezes, while the outlook for the remainder of October remained unchanged, showing mild weather across most of the US. Market players awaited the release of EIAs natural gas inventory data, due at 14:30 GMT, set to show the 27th consecutive above-average weekly build.

Natural gas futures for settlement in November fell 0.77% to $3.631 per million British thermal units by 11:22 GMT, having earlier touched a fresh 11-month low of $3.625. The energy source slid 1.4% on Wednesday to $3.659, extending its weekly decline to 3.6% so far this week.

According to NatGasWeather.com, natural gas demand over the next seven days will remain low-moderate, compared to normal, with a neutral trend for the 8-14 day outlook.

The Northeast will see showers and slightly cooler-than-usual readings today as the previously reported slow moving weather system tracks across the region, moving east. The central and eastern US will enjoy above-seasonal temperatures this weekend before additional weather systems arrive next week.

Readings over the central and southern US are also expected to be mild over the next several days, with highs into the 60s and 70s, and 80s for the South. Pacific storms across the Northwest will carry rains and slightly cooler-than-normal readings.

Next week, a weather system tracking across the north-central US will push readings below average and will track into the Northeast, followed by additional cool blasts. The central and southern parts of the country, however, will remain mild, curbing heating and cooling demand. The West will enjoy warm temperatures, while the Northwest will remain cooler and with showers.

The market has drawn support in the recent weeks amid expectations that a cold start to November will narrow weekly inventory injections and push the market up. However, how much cold Canadian air will be tapped by the predicted weather systems is still not clear, with weather data over the past 24 hours becoming less convincing.

“If weather patterns fail to bring cold temperatures throughout the firs tweek of November, we believe this would continue to provide bearish weather sentiment as three straight much larger than normal builds would line up,” NatGasWeather.com analysts said in an e-mailed note.

Supplies

Market players eyed EIAs upcoming natural gas inventories report for confirmation of the bearish supply-demand ratio. Due to last week’s mostly seasonal and in some regions above-normal temperatures, analysts’ expectations for the build due to be reported on October 23rd ranged between 95 and 98 billion cubic feet, well above the five-year average net injection of 70 billion cubic feet. A triple-digit build would be considered strongly bearish, while a net injection of 90 bcf and below – the opposite.

The Energy Information Administration said in its Short-Term Energy Outlook dated October 7th that inventories may rise to 3.532 trillion cubic feet by the end of the month, the lowest for this time of the year in six years. Marketed gas production is expected to jump 5.4% this year to 73.98 bcf per day, the biggest percentage increase and also volume since 2011.

The EIA reported last Thursday that US natural gas inventories rose by 94 billion cubic feet (bcf) in the seven days through October 10th, exceeding analysts’ projections for a build in the range of 89-92 bcf and the five-year average gain of 78 billion. This was the 26th consecutive above-average weekly build.

Temperatures

According to AccuWeather.com, readings in New York on October 25th will range between 54 and 64 degrees, above the average 47-61, before rising to 56-72 on October 29th. Boston will be mostly seasonal on October 26th at 45-58 degrees, before a following warm-up pushes the mercury to as much as 69 degrees three days later.

Chicago will see slightly above-normal readings on Saturday at 44-62 degrees, before falling to 45-53 degrees on October 30th, compared to the average of 41-57.

Down South, readings in Houston will peak at 85 degrees during the weekend, 6 above normal, before dropping to the seasonal 77-78 degrees between October 30th and November 1st. On the West Coast, Los Angeles will reach 86 degrees tomorrow, 8 above usual, and will remain at above-average levels through October 30th. As of the next day, highs are projected to come in at the below-usual upper 60s through the first seven days of November.

Pivot points

According to Binary Tribune’s daily analysis, November natural gas futures’ central pivot point stands at $3.676. In case the contract penetrates the first resistance level at $3.701 per million British thermal units, it will encounter next resistance $3.743. If breached, upside movement may attempt to advance to $3.768 per mBtu.

If the energy source falls below S1 at $3.634 per mBtu, it will next see support at $3.609. If the second key support zone is breached, the power-station fuel’s downward movement may extend to $3.567 per mBtu.