Natural gas trading outlook: futures surge on Arctic cold

Natural gas rallied on Wednesday as market players weighed short-term forecasts calling for Arctic temperatures across the central and eastern US against a milder outlook for the weekend and next week.

On the New York Mercantile Exchange, natural gas for delivery in December rose 3.65% to $4.399 per million British thermal unit by 13:42 GMT. Prices shifted in a daily range of $4.444-$4.194. The contract fell 2.23% on Tuesday to $4.244 after it surged 8% on Monday, the most since February.

According to NatGasWeather.com, natural gas demand in the US will be high compared to normal in the next seven days, but will begin to moderate, while the weather trend for the November 27 – December 3 time span will be neutral.

Most of the eastern and central US will remain in the grasp of Arctic temperatures today, inducing very strong early season heating demand. However, a warm-up across Texas and the Southeast will begin, allowing for mild temperatures into the 60s and 70s to replace the current below-freezing readings over the next few days.

The transition to mostly seasonal temperatures across many regions will continue through the end of the week as an expected Pacific jet stream enters the western US on Friday. A new colder weather system will hit the north-central US on Monday, sending readings below the freezing level, but only 10-15 degrees beneath seasonal levels.

Late next week, the countrys western areas and Plains will enjoy seasonal, or slightly below seasonal weather. However, heating demand on the national level will largely depend on whether a weather system manages to tap Arctic air across the Canadian border, which could swiftly turn the weather trend much colder. Extended forecasts show a mild start to December, but weather models are far from clear yet, raising attention toward the aforementioned pool of Arctic air.

Temperatures

According to AccuWeather.com, readings in New York on November 21st will range between 31 and 39 degrees Fahrenheit, well below the average of 40-52, and will be mostly seasonal at 41-47 on November 27th. Chicago will max out at 25 degrees on November 21st, compared to the average of 46, before reaching 52 degrees on November 27th.

Down South, the high in Houston on Saturday will be 73 degrees, 3 above usual, before falling to 60 degrees on November 28th, 8 beneath normal. On the West Coast, Los Angeles will reach the seasonal 72 degrees on November 22nd and is expected to hold mostly at or little above seasonal levels through November 28th.

Supplies

The Energy Information Administration reported on Friday that US natural gas inventories rose by 40 billion cubic feet (bcf) in the seven days ended November 7th. Total gas held in US storage stood at 3.611 trillion cubic feet, narrowing its deficit to the five-year average of 3.848 trillion to 6.2%. Inventories were 5.7% lower compared to last year’s 3.831 trillion cubic feet during the comparable period.

Due to last week’s much colder-than-usual weather, this Thursday’s EIA report is expected to show the first weekly withdrawal since the beginning of the replenishment season in April. Analysts’ early estimates ranged between a draw of 6 to 11 billion cubic feet, compared to the five-year average decline of 10 bcf.

Moreover, this week’s impressive Arctic blast is projected to lead to a significant draw for next week’s report, possibly exceeding the 100-bcf mark.

Pivot points

According to Binary Tribune’s daily analysis, December natural gas futures’ central pivot point stands at $4.243. In case the contract penetrates the first resistance level at $4.337 per million British thermal units, it will encounter next resistance at $4.430. If breached, upside movement may attempt to advance to $4.524 per mBtu.

If the energy source drops below its first support level at $4.150 per mBtu, it will next see support at $4.056. If the second key support zone is breached, the power-station fuel’s downward movement may extend to $3.963 per mBtu.

In weekly terms, the central pivot point is at $4.165. The three key resistance levels are as follows: R1 – $4.399, R2 – $4.778, R3 – $5.012. The three key support levels are: S1 – $3.786, S2 – $3.552, S3 – $3.173.