Natural gas trading outlook: futures head for weekly gains, cold in focus

Natural gas futures edged lower during early trade in Europe today, though still on track to log a sizable weekly increase. Traders looked past comfortable temperatures and the big weekly build reported by the US, to enter bullish positions in advance of a cold Canadian system, due to reach the US next week.

Front-month natural gas futures for settlement in November on the New York Mercantile Exchange traded at $4.008 per million British thermal units (mBtu) at 9:40 GMT, down 0.15% for the day. Prices ranged from $3.986 to $4.040 per mBtu. The contract is on track for a ~1.6% weekly gain, after adding 3.7% over the past two sessions.

Natgas prices again defied broader expectations yesterday, after rallying behind a perceivably bearish weekly US report.

The US Energy Information Administration (EIA) reported the build at natural gas inventories for the week ended September 19th to largely meet expectations 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 the 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, analysts say, as mild temps for this and the following week ease both heating and cooling.

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

“The markets should know by now cooler temperatures are coming to the northern US, with below freezing temperatures to many states and highs in the 50s, potentially only in the
40s,” analysts at NatGasWeather.com wrote in a note to clients today. “In reality, it’s not exceptionally cold, but will likely garner enough hype to get the markets attention.”

With total natural gas in storage a sizable amount below the 5-year average, the market is exceptionally sensitive to signs of another brutally cold winter. The possibility of early cold could provide enough upside to completely disregard bulky builds to come, as bulls look to grab early winter hype.

“For now, we are seeing a greater threat of colder temperatures than warmer ones,” the analysts at NatGasWeather.com wrote. But the pattern for next week “clearly will provide very good nat gas build weather as the next two come in well over 100 Bcf.”

US weather outlook

Weather patterns project 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 through to late next week, with little of either cooling or heating.

New York is for a sunny and pleasant Friday, AccuWeather.com reported, with temperatures at 60-75 degrees Fahrenheit, several above average. Temps will climb even further for the weekend, with highs in the 80s and plenty sun. Chicago will have an extended period of normal, and pleasant, weather as temps range high 50s to about 70 through to late next week.

Down South, Houston is also set for seasonal weather today, with temperatures at 69-84. Readings will be largely the same over the weekend, with highs at the mid 80s. Over on the West Coast, Los Angeles will also see normal temps today, highs up to 82. Low clouds will lower readings to a few below normal for the weekend, with highs in the mid-to-upper 70s.

Technical support and resistance levels

According to Binary Tribune’s daily analysis, November natural gas futures’ central pivot point stands at $3.968. In case the contract penetrates the first resistance level at $4.063 per million British thermal units, it will encounter next resistance at $4.111. If breached, upside movement will probably attempt to advance to $4.206 per mBtu.

If the energy source drops below its first support level at $3.920 per mBtu, it will next see support at $3.825. If the second key support zone is breached, the power-station fuel’s downward movement may extend to $3.777 per mBtu.

Do you agree that the natgas market should already be looking at winter heating hype?

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