Natural gas trading outlook: futures headed for weekly gain

Natural gas futures were higher during early trade in Europe and were on track to score a sizable weekly gain, despite another big weekly build for US natgas inventories pressuring contracts on Thursday.

Front-month natural gas futures for settlement in October on the New York Mercantile Exchange traded at $3.837 per million British thermal units (mBtu) at 8:54 GMT, up 0.37% for the day. Prices ranged from $3.825 to $3.844 per mBtu. The contract is headed for a ~1.4% weekly gain, despite a ~3% drop on Thursday.

“We clearly see weather patterns as being strongly bearish to prices beginning later this weekend,” analysts at NatGasWeather.com wrote in a note to clients today. “There is little reason to buy into early season winter hype as hefty builds should continue to rule.”

Yesterday, the US Energy Information Administration (EIA) reported the build at natural gas inventories for the week ended September 5th to be quite higher than expected at 92 billion cubic feet (Bcf). The figure also represents the 21st straight week of above-average injections and narrowed the deficit to the same-week 5-year average to just 14.2% at 2.801 trillion cubic feet of natural gas in storage.

This week’s cold spell will likely have a positive impact on upcoming natgas inventory builds, further adding to momentum as the market enters Fall shoulder season.

“We expect next week’s build to come in around 90-95 Bcf , and the ones after to be over 100+ Bcf,” NatGasWeather.com said.

US weather outlook

The cool Canadian system which brought the first snowfall to the US this week has reached the far Southeast and lost much of its potency, with temperatures already starting to climb. Another cool front, however, is advancing through the Great Lakes and will bring reinforcing cool to the Northeast and the northern Midwest, killing most of any cooling and prompting some light heating. Southern California temps are nearing record highs, meanwhile, driving some significant cooling in the highly populated region.

“Weather patterns will be very comfortable overall and much larger than normal builds will be lining up for the rest of September,” the analysts at NatGasWeather.com added. “Waning late September sun will limit the amount of cooling needed.”

New York is set for a sunny Friday with seasonal temps ranging 61-75 degrees Fahrenheit, according to AccuWeather.com. The weekend will be quite cooler, with highs barely breaking above 70, before next week temps moderated to normal. Chicago is having among the coolest September 12th on record, with lows dropping to as little as 48, 20 degrees below the average, while the high wont climb above 58. Temps will begin to just slightly edge higher into the weekend, but will remain at least 10 below usual up to late next week.

Down South, Houston will have another cloudy day, with temps ranging 73-91 Fahrenheit. Readings will drop several degrees tomorrow, before slowly climbing back into average range early next week. Over on the West Coast, Los Angeles will be warmer than normal with highs breaking above 90, several more than average. The weekend will be even hotter, with highs in the upper 90s, before the heat dissipates by Wednesday next week.

Overall US cooling demand will be moderate-to-low for the next seven days, before temps in the North slowly edge up later next week, while the South and West remain quite warm.

Technical support and resistance levels

According to Binary Tribune’s daily analysis, October natural gas futures’ central pivot point stands at $3.865. In case the contract penetrates the first resistance level at $3.921 per million British thermal units, it will encounter next resistance at $4.019. If breached, upside movement will probably attempt to advance to $4.075 per mBtu.

If the energy source drops below its first support level at $3.767 per mBtu, it will next see support at $3.711. If the second key support zone is breached, the power-station fuel’s downward movement may extend to $3.613 per mBtu.