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Natural gas trading outlook: futures trade below $4 ahead of EIA report

Natural gas futures were pressured during early trade in Europe today, after the the front-month contract failed to break the key $4 resistance. Investors eye US natural gas storage figures due tomorrow, which usually spur frenzied trading.

Front-month natural gas futures for settlement in October on the New York Mercantile Exchange traded at $3.975 per million British thermal units (mBtu) at 9:35 GMT, down 0.50% for the day. Prices ranged from $3.967 to $3.997 per mBtu. The contract added 1.63% yesterday and a further 1.92% on Monday.

Natural gas extended a gains on Tuesday, on a rally that analysts thought had been induced by an incident on a pipe in the US. An ominous Canadian system set to track through the US next week supported against a rebound, however, traders seeing it could potentially tap into much colder Canadian air before sweeping south.

“We remain marginally bearish but with a very cautious eye looking at potentially the first signs of truly cold weather patterns,” analysts at NatGasWeather.com wrote in a note to clients today. “If prices continue to find support in the face of bearish weather headwinds and large builds, then we need be prepared the markets likely won’t make another low.”

The system now looks less threatening, and prices failed to breach the key $4 resistance, which they tested twice this week. Early winter hype, however, kept any big recoils safely away, and trading kept in a price range.

“There’s a lot of hype for another brutally cold winter over the eastern US,” NatGasWeather.com analysts wrote. “But if winter fails to deliver, we will be swimming in nat gas sooner than later.”

Thursday will probably offer a healthy amount of market direction, as the US will report the weekly natural gas inventories build. The log usually triggers intense trade, with even small deviations from expected builds resulting big moves in either direction. Analysts expect a close-to-100Bcf build be reported this week, which would be the 22nd straight bigger-than-average injection.

US weather outlook

A mild cool blast continues tracking through the Great Lakes and into the US Midwest and Northeast, keeping temperatures comfortable, killing much of any cooling demand and probably inducing some very light heating in the next few days. Meanwhile, the South will be warming as high pressure builds, which will eventually break into the North, heating the Midwest and Northeast later next week. The West Coast is experiencing a very hot few days ahead of moderate temps coming back by the weekend. Overall cooling demand across the US will be moderate-to-low for the next few days, with insignificant heating.

“By this weekend, much of the country will be experiencing temperatures in the mid-70s to mid-80s and very comfortable overnight lows,” NatGasWeather.com analysts wrote.

New York is having a sunny and pleasant Wednesday, according to AccuWeather.com, with temperatures ranging the seasonal 57-73 degrees Fahrenheit. Thursday will also be nice and sunny, while Friday will see a several-degree drop for temps, before readings climb again to normal for the weekend. Chicago remains quite cool, with temperatures some 10 below averages. Readings today and tomorrow will be between 54 and 65 degrees, while on Friday several degrees of warming are due.

Down South, Houston is set for storms and showers today, though temps will be seasonal, climbing to as high as 87. Storms and showers will be abound through to the weekend, again with mostly normal temperatures. Over on the West Coast, Los Angeles readings broke into triple digits yesterday, logging near the highest temperatures on record at 103 Fahrenheit, 20 above average. Today will be little different, with temps reaching the upper 90s, before temps moderate to near-average by Thursday.

Technical support and resistance levels

According to Binary Tribune’s daily analysis, October natural gas futures’ central pivot point stands at $3.952. In case the contract penetrates the first resistance level at $4.042 per million British thermal units, it will encounter next resistance at $4.088. If breached, upside movement will probably attempt to advance to $4.178 per mBtu.

If the energy source drops below its first support level at $3.906 per mBtu, it will next see support at $3.816. If the second key support zone is breached, the power-station fuel’s downward movement may extend to $3.770 per mBtu.

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