Natural gas trading outlook: futures extend rally on East cold

Natural gas rose for a fourth day and headed toward a sizable weekly gain amid speculations that cold weather over the eastern US will induce higher-than-average local heating demand.

On the New York Mercantile Exchange, natural gas for delivery in December surged by 2.80% to $3.934 per million British thermal units by 10:46 GMT. Prices ranged between $3.955 and $3.835. The contract rose for a third day on Thursday, having settled 1.03% higher at $3.827 per mBtu, and is up 6.3% so far this week, which could be the highest weekly gain since mid-February.

According to NatGasWeather.com, natural gas demand in the US over the next seven days will be moderate, and locally high, compared to normal, with a neutral weather trend for the seven days between November 7-13.

A cold Canadian weather system will track across the Midwest today into the eastern US and extend even into the Southeast. Lows over many of the affected regions will drop into the 30s and 20s on Saturday, bringing the first widespread freeze for the season. Many parts of the east-central US will see the strongest heating demand so far this season. Cooler weather and showers will dominate over the West Coast in the next days, as Pacific storms head inland.

Early next week, mild temperatures will return to the central and southern US. Fast moving Canadian weather systems will enter the Midwest and northern US late next week, probably carrying close to or below-freeze temperatures, NatGasWeather.com reported. However, their area of effect will be contained and the lower two thirds of the country will remain mild with highs in the 60s and 70s. Readings across the West Coast are expected to remain cooler.

Despite the cold snap to the East which pushed the market up this week, it will be hard for prices to go past $4.00 and retain gains, given next weeks forecasts for mild weather across most of the country. The cold front will need to push deep down south in order to reduce the next two weeks inventory builds, which have been racing ahead of the rapidly declining average net injections.

Temperatures

According to AccuWeather.com, readings in New York on November 3rd will range between 42 and 56 degrees Fahrenheit, below the average of 45-58, before warming up to 47-63 degrees three days later. Chicago will drop to 34 degrees on November 1st, 7 below usual, and will range between the mostly seasonal 40-52 degrees on November 7th.

Down South, temperatures in Houston will max out at 72 degrees on November 2nd, 5 beneath normal, before rising to the seasonal 76 degrees on November 6th. On the West Coast, the high in Los Angeles on November 1st will be 69 degrees, 7 beneath normal, before rising to as much as 81-82 degrees on November 6-7.

Supplies

The Energy Information Administration reported on Thursday that US natural gas inventories rose by 87 billion cubic feet in the week ended October 24th, sharply exceeding the five-year average increase of 59 bcf and the 45-bcf gain during the comparable period a year ago. Analysts had projected an 85-bcf jump. Nevertheless, the market rallied on weather data.

Total gas held in US storage stood at 3.480 trillion cubic feet, narrowing the deficit to the five-year average to 8.2%, compared to 9.1% a week earlier. Inventories were 7.8% below the 3.774 trillion cubic feet of gas held in storage a year ago.

Pivot points

According to Binary Tribune’s daily analysis, December natural gas futures’ central pivot point stands at $3.823. In case the contract penetrates the first resistance level at $3.877 per million British thermal units, it will encounter next resistance at $3.928. If breached, upside movement may attempt to advance to $3.982 per mBtu.

If the energy source drops below its first support level at $3.772 per mBtu, it will next see support at $3.718. If the second key support zone is breached, the power-station fuel’s downward movement may extend to $3.667 per mBtu.