Natural gas trading outlook: futures climb ahead of EIA report

Natural gas futures clawed back earlier gains during midday trade in Europe today, as investors eye the US inventories report due Thursday. The log usually spurs a frenzy of trade as big market players tend to act after the report.

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 10:41 GMT, up 0.55% for the day. Prices ranged from $3.820 to $3.844 per mBtu. The contract dropped 0.88% on Tuesday.

“We continue to view coming weather patterns as very bearish. The longer these patterns continues into October, the longer prices will likely remain under $4.00,” analysts at NatGasWeather.com wrote in a note to clients today. “We have yet to rule out one more seasonal low before colder winter temperatures finally arrive and drive prices higher.”

With just a few days left in the October contract, higher volatility is to be expected, analysts say. Prices are very unlikely to break the $3.75-$4 trading range of the past few weeks, but a surprise in the Energy Information Administration (EIA) weekly natgas report tomorrow could spell shock for the markets.

Traders have been reluctant to price in a milder weather outlook in the next two weeks, as a ominously cold reservoir of cold air over northern Canada could be tapped by US-bound weather systems by early October.

Meanwhile, seasonal maintenance at nuclear power plants and coal stockpiling at thermal power plants could also be driving natgas demand up, supporting prices against the mild weather.

More light will be shed on supply and demand tomorrow, as the EIA releases its weekly readings on natgas inventories. Analysts expect a build of just under 100 billion cubic feet be logged for the week through September 19th. The next two weeks, however, will most probably see builds in the triple digits, as Fall shoulder season kicks in high gear.

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 are also seeing somewhat warmer temps, though incoming Pacific systems will be bringing lower readings by later this week. Overall, temperatures will be quite pleasant and comfortable, with little of either heating or cooling.

“Weather patterns are playing out very favorably for producing much larger than normal [natgas] builds,” the analysts at NatGasWeather.com wrote. “Almost the entire US, apart from the West, will experience highs in the 70s and 80s from now through early October.”

New York will be sunny and pleasantly warn today, according to AccuWeather.com, with temperatures at the seasonal 59-73 degrees Fahrenheit. Tomorrow will be the coolest day of September, with temps at the mid 60s, winds and heavy rains. The weekend will be sunny quite warmer than the normal, with highs up in the 80s. Chicago will be cooler today, with readings reaching only to the upper 60s. Temps will be gradually climbing, however, to be near-normal for the remainder of September.

Down South, Houston will have seasonal temps at 68-86 through to the weekend, when a slight cooling will lower readings to more comfortable levels of 67-83. The rest of September will be slightly warmer, though still at near-normal levels. Over on the West Coast, Los Angeles will warm to the mid 80s today, slightly above average. Temperatures will remain just above normal through to the weekend, when highs about 80 are due.

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 $3.875 per million British thermal units, it will encounter next resistance at $3.934. If breached, upside movement will probably attempt to advance to $3.965 per mBtu.

If the energy source drops below its first support level at $3.785 per mBtu, it will next see support at $3.754. If the second key support zone is breached, the power-station fuel’s downward movement may extend to $3.695 per mBtu.