Natural gas trading outlook: futures drop ahead of cold for the US

Natural gas futures dropped during early trade in Europe today, after rallying some 2% on Monday with an ominous Canadian weather system set to push deep into the US later this week. The blue fuel lost ~7% last week, as summer heat wanes and the market enters Fall shoulder season.

Front-month natural gas futures for settlement in October on the New York Mercantile Exchange traded at $3.855 per million British thermal units (mBtu) at 9:17 GMT, down 0.54% for the day. Prices ranged from $3.854 to $3.893 per mBtu. The contract added 2.19% on Monday after logging a monthly low at $3.761.

“Yesterday’s rise could have been nothing more than some profit taking from big market players combined with a little hype for early season cooler than normal temperatures,” analysts at NatGasWeather.com wrote in a note to clients today. “Our bias remains to the downside, but with caution as recent oversold conditions and less bearish weather try to work in concert to support prices.”

Investors now shift focus to an incoming cool Canadian system, which will track through the central and northern US in the coming days, lowering temps by 10-20 degrees in places.

This early cold spells heating demand to start early, though it will probably not last and will not have a serious impact on upcoming inventories builds.

Analysts project this Thursdays EIA report will post the 21-st straight week of above average builds for natgas inventories, after last week the deficit to the 5-year average volume was narrowed to only 15.4%, down from a record 50% in March.

“It is not unreasonable to think there are potentially at least 7-8 straight weeks of fairly big builds to come, with most, if not all, being much larger than normal,” the analysts at NatGasWeather.com wrote.

US weather outlook

A quite cool Canadian system is already tracking through the Rockies and will have reached the central US by Wednesday, bringing temps down some 10-20 degrees over the Midwest and North Plains, and later on over the Southeast and the East Coast. Temperature troughs could reach as low as 30-40 Fahrenheit, which will spur heating in some areas. The far South and the West will see mostly seasonal weather, and overall cooling demand will be dropping from moderate to low.

“We are expecting weather patterns to become very comfortable by late this weekend which should last through the third week of September, if not much longer,” NatGasWeather.com wrote.

New York is set for a moderately warm day, temperatures between 65 and 76 degrees Fahrenheit, according to AccuWeather.com. Lingering clouds through to Friday will fail to stop temps from rising to several degrees above average, before a much cooler trend for the weekend and into next week. Chicago will feel the cool Canadian system much earlier, with temps dropping to 50-60 range, 15-20 below average, as early as Thursday. Temps will be normal today and tomorrow, though some severe thunderstorms are bound for Wednesday.

Down South, Houston will have an average week, with temperatures at 75-93 and mostly sunny weather. Starting Saturday and into next week though, temps will drop with clouds, rains and some thunderstorms coming along with the cool system. Over on the West Coast, Los Angeles is set for a moderately warm week, temps ranging upper 60s to upper 80s, before readings climb to more than 10 degrees above average next week, with highs in the mid 90s.

Technical support and resistance levels

According to Binary Tribune’s daily analysis, October natural gas futures’ central pivot point stands at $3.845. In case the contract penetrates the first resistance level at $3.929 per million British thermal units, it will encounter next resistance at $3.982. If breached, upside movement will probably attempt to advance to $4.066 per mBtu.

If the energy source drops below its first support level at $3.792 per mBtu, it will next see support at $3.708. If the second key support zone is breached, the power-station fuel’s downward movement may extend to $3.655 per mBtu.