Natural gas trading outlook: futures extend rally on Arctic cold in the East

Natural gas rose for the fourth day in five as Arctic temperatures across the central and eastern US fueled very strong early season heating demand. Market players eyed unclear weather models for the beginning of December and awaited EIAs inventory report.

Natural gas for delivery in December rose by 2.17% to $4.466 per million British thermal units by 10:34 GMT, having shifted in a daily range between $4.482 and $4.364. The contract rose 2.99% on Wednesday to $4.371, reversing the previous days 2.23% decline. Prices are up 10.9% so far this week.

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

Freezing temperatures will drive very strong heating demand across the eastern and central US for one last day today as an Arctic blast sweeps across the Great Lakes and Northeast. However, milder temperatures have already started to make their way northward from Texas and the Plains and will extend into the Midwest and eastern US this weekend. Readings over the affected regions are expected to become seasonal or slightly higher.

A new cold weather system with rains and snow will hit the north-central US next week, NatGasWeather.com reported, although it will have a lesser effect compared to the current Arctic outbreak. Late next week, around Thanksgiving Day, a number of chilly weather systems will track across central and eastern US, pushing temperatures below normal into the weekend. Warmer conditions are expected to follow, giving December a mild start for most of the US.

However, a pool of Arctic air right across the Canadian border stands a decent chance of being tapped by some of the weather systems tracking over the northern US late next week. If this happens, the weather trend across the North, and then possibly the eastern and central US as well, could turn much colder very swiftly.

Temperatures

According to AccuWeather.com, readings in New York on November 22nd will range between 36 and 42 degrees Fahrenheit, well below the average of 40-52, and will remain mostly seasonal, or a bit colder, through the end of the month. Readings in Chicago will range tomorrow between 27 and 29 degrees, beneath the average of 32-46, and will still be below usual at 27-37 on November 27th.

Down South, the high in Houston on November 23rd will be 75 degrees, 5 above normal, before sliding to 66 degrees on November 28th, 2 beneath seasonal. On the West Coast, Los Angeles will reach 75 degrees on November 23rd, 4 above the average, and is expected to hold above usual levels through November 27th.

US inventories, EIA report eyed

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, today’s EIA report is expected to show the first weekly withdrawal since the beginning of the replenishment season in April. Analysts’ estimates range between a draw of 6 to 12 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 $4.358. In case the contract penetrates the first resistance level at $4.521 per million British thermal units, it will encounter next resistance at $4.672. If breached, upside movement may attempt to advance to $4.835 per mBtu.

If the energy source drops below its first support level at $4.207 per mBtu, it will next see support at $4.044. If the second key support zone is breached, the power-station fuel’s downward movement may extend to $3.893 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.