Natural gas trading outlook: futures cut losses despite US inventories bulking up

Natural gas futures pared some of the sessions losses during afternoon trade in Europe today, despite a neutral-to-bearish EIA report, which revealed a larger than expected build at US stocks.

Front-month natural gas futures for settlement in October on the NYMEX traded at $3.846 per million British thermal units (mBtu) at 14:35 GMT, down 0.90% for the day. Prices ranged from $3.845 to $3.900 per mBtu. The contract added 2.49% on Wednesday.

The US Energy Information Administration (EIA) reported the build at natural gas inventories for the week ended September 19th to be quite larger than expected at 97 billion cubic feet (Bcf). The figure also represents the 23rd straight week of above-average injections, and with 2.988 trillion cubic feet of natural gas in storage, the deficit to 5-year average was narrowed to just 12.5%. The series also logs the highest 20-week build in more than 20 years.

The next two weeks will likely see builds in the triple digits, as Fall shoulder season kicks in high gear.

Investors are also closely monitoring a southbound cool Canadian system, due to reach the US in early October. The initial blast will be over low-natgas use states, though by the 6th the system will have moved over the Midwest, and the Northeast later on, adding to the possibility of sizable heating demand.

“This [system] most certainly will ease bearish weather headwinds, and depending on how sensitive the markets are to coming cold weather patterns, it could entirely erase them,” NatGasWeather.com analysts wrote. “If the colder [pattern] solutions were looking more convincing, it might be time to look for a buying opportunity. But they are not, and so we will be patient over the next few days.”

Meteorologists see strengthening high pressure over the southern US, already breaking into the Midwest and Northeast. As a result, temperatures across the regions will be rising to quite comfortable, allowing for bumper natgas builds in the following weeks. The West will have a cooler weekend, as offshore systems draft clouds and rains inland, cooling California and the region after the recent hot spell. Overall, US temps will be quite pleasant in the next few days and weeks, with little of either cooling or heating.