Natural gas trading outlook: futures hold on to gains, US braced for cold

Natural gas futures were little changed during early trade in Europe today, retaining the significant gains from the past few sessions, as investors eye a 10-day cold spell in the northern US, set to begin later this week.

Front-month natural gas futures for settlement in November on the New York Mercantile Exchange traded at $4.155 per million British thermal units (mBtu) at 9:34 GMT, up 0.02% for the day. Prices ranged from $4.130 to $4.157 per mBtu. The contract added 3.1% on Monday after a further ~3.2% gain last week.

The blue fuel clocked a significant gain on Monday, as investors looked past a sizable injection to natgas inventories in the US last week, and towards a set of cool Canadian weather systems, due to reach the US later this week.

The systems could potentially drive temperatures highs to as low as 50 degrees Fahrenheit over the northern US, while overnight lows drop well below freezing. Though not exceptionally cold, the system boasts enough strength to scare the markets into an early heating hype, as investors are still more sensitive to cold forecasts, after the brutally cold winter last year.

“This coming cooler pattern would generate market hype, it’s likely not quite intimidating enough to bring a sustained and prolonged rally,” analysts at NatGasWeather.com wrote in a note to clients today. “Don’t be shy about taking profits as this [hype] could turn into buy the news, sell the fact.”

Moderately low on investors radar was the upcoming weekly US natgas inventories report, due on Thursday. The Energy Information Administration (EIA) report will likely feature a three-digit weekly build, as mild weather last week highlights the momentum of Fall shoulder season. The report for the following week is also expected to log a 100Bcf+ build, as comfortable weather this week limits both cooling and heating overall demand.

US weather outlook

“Cooler Canadian air sweeps into the Plains and develops into a fairly strong weather system that tracks through the Midwest Friday, and the Northeast Saturday. Expect cooler temperatures over some important nat gas demand states through October, 12-13th,” the analysts at NatGasWeather.com wrote. “There will still be very warm temperatures over Texas and California at times due to high pressure and offshore winds, which will drive at least moderate cooling demand.”

New York will be significantly cooler today, though still warmer than average, according to AccuWeather.com, with temps at 60-74 degrees Fahrenheit. Readings will drop a few to near seasonal levels tomorrow, and will remain normal-to-slightly warmer through to next week. Chicago is also set for a considerably cooler Tuesday, with the daily high forecast at 59, 10 below average. Temps will briefly climb to normal through Thursday, before dropping again for quite cool weekend and early next week.

Down South, Houston is having a sunny, normal, rather boring week, with temps at mid 70s-upper 80s, slightly above average. Friday and the weekend, however, will see several degrees of cooling. Over on the West Coast, Los Angeles is having normal 64-82 temperatures through to Thursday, when readings will climb some 10 degrees. The heat will persist through to next week, when temps will slowly moderate to normal.

Technical support and resistance levels

According to Binary Tribune’s daily analysis, November natural gas futures’ central pivot point stands at $4.109. In case the contract penetrates the first resistance level at $4.207 per million British thermal units, it will encounter next resistance at $4.260. If breached, upside movement will probably attempt to advance to $4.358 per mBtu.

If the energy source drops below its first support level at $4.056 per mBtu, it will next see support at $3.958. If the second key support zone is breached, the power-station fuel’s downward movement may extend to $3.905 per mBtu.

Do you believe the natgas market will reverse gains by mid-October?

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