Natural gas trading outlook: futures climb as cold October eyed

Natural gas futures were to the upside during early trade in Europe today, extending Mondays gains. Weather patterns call for very comfortable conditions over key natgas-demand regions in the US this week, dampening bullish outlooks, though longer-term projections already glimpse early winter cold.

Front-month natural gas futures for settlement in October on the New York Mercantile Exchange traded at $3.887 per million British thermal units (mBtu) at 9:39 GMT, up 0.96% for the day. Prices ranged from $3.832 to $3.900 per mBtu. The contract added 0.34% on Monday.

“We have been calling for one more seasonal low before the winter rally begins. Prices will have the opportunity to drop and again test $3.75,” analysts at NatGasWeather.com wrote in a note to clients today. “Patterns look very favorable for 100+ Bcf builds after this Thursday’s comes in just under.”

The natural gas market is in the midst of the so-called Fall Shoulder season, which is the key period when the summer heat-induced cooling is diminishing and the winter cold-heating is still not in bulk. This unbalance allows for massive builds in natural gas inventories, and the injections usually trump much of any bullish sentiment.

The comfortable temperatures of the past week hurt natgas demand, and the US Energy Information Administration (EIA) will probably report close-to-100 billion cubic feet of natural gas were added to stockpiles. If so, it would be the 23rd straight bigger-than-average weekly build, and will narrow the deficit to the 5-year average total to near 10%, after the record 55% deficit in March.

Last week the EIA reported the build at natural gas inventories for the week ended September 12th to also be quite larger than expected at 90 Bcf. This compared to a 48-bcf build a year earlier and the five-year average gain pace of 71 billion cubic feet, and also narrowed the gap to the 5-year average to just 13.3%.

A concern to investors and a drive for natgas bulls is a massive reservoir of cold Canadian air, currently trapped over northern Canada. The cold creeps southwards, however, heralding the arrival of winter as it goes. The US will remain isolated from the cold air for at least two more weeks, weather patterns show, but by mid-October the way to the US could be open, signaling a big increase in heating could be imminent.

“We are concerned much colder weather patterns are not far off,” NatGasWeather.com wrote. “Once the real cold air begins its march toward the US, it will be time to get rid of all bearish expectations and let the fear on another brutally cold winter begin to drive prices higher.”

US weather outlook

Weather patterns project the high-pressure over the southern US will break into the Northeast and Midwest over the next few days, warming the regions to comfortable. The South and West also set off the week with somewhat warm temps, though incoming Pacific systems will be bringing lower temps by later this week. Overall, temperatures will be quite pleasant and comfortable, with little of either heating or cooling.

“The regions that matter most to the nat gas markets will experience [comfortable] highs in the 70s and 80s from now through early October,” NatGasWeather.com analysts wrote. “We expect bearish weather headwinds to remain strong for a little while longer, but cold patterns [could] begin to look more promising after October 5th.”

New York will have a pleasant and sunny Tuesday, with temperatures ranging the seasonal 57-71 degrees Fahrenheit, according to AccuWeather.com. Temps will be slightly higher tomorrow, before dropping to a few below average on Thursday. Through the weekend, however, readings will be soaring some 10 degrees above normal. Chicago is set for slightly cooler Tuesday, with temps climbing to no higher than 67, several below average. Readings will moderate towards the average by the weekend, however, before another cold spell next week.

Down South, Houston will be more comfortable today and throughout this week, with highs in the mid 80s and lows about 70. Over on the West Coast, Los Angeles will be slightly warmer than usual this week, with temperatures between 70 and 85, before a slightly cooler and more comfortable weekend, when readings will be below 80.

Technical support and resistance levels

According to Binary Tribune’s daily analysis, October natural gas futures’ central pivot point stands at $3.844. In case the contract penetrates the first resistance level at $3.884 per million British thermal units, it will encounter next resistance at $3.918. If breached, upside movement will probably attempt to advance to $3.958 per mBtu.

If the energy source drops below its first support level at $3.810 per mBtu, it will next see support at $3.770. If the second key support zone is breached, the power-station fuel’s downward movement may extend to $3.736 per mBtu.