Natural gas trading outlook: futures hit four-week low on mild weather

Natural gas fell for a second day on Thursday as weather forecasts pointed to mostly mild weather across the central and eastern US, defying previous projections for a cold spell that would induce strong heating demand. Market players awaited EIAs supply data, due at 14:30 GMT, for further clues on US demand.

On the New York Mercantile Exchange, November natural gas futures fell to nearly a four-week low of $3.824 per million British thermal units earlier in the session. The contract traded at $3.862 per mBtu at 12:22 GMT, up 0.18% on the day. The energy source slid 2.58% on Wednesday to $3.855, the lowest settlement since September 23rd.

The power-station fuel extended its drop as weather forecasting models called for mostly mild temperatures across most of the US through the end of October.

Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York, said for Bloomberg: “We saw a pretty important change in the overnight weather patterns where we no longer see cold in any major heating market through October. Those key consuming markets will likely require very little heating fuel through the month.”

According to NatGasWeather.com, cool blasts, coupled with showers and thunderstorms, will push temperatures across the central US and Northeast this weekend to below average, but nothing too excessive. At the same time, the southern and western parts of the country will remain very warm, with highs reaching into the upper 80s and lower 90s, which will drive moderate cooling demand.

Early next week, high pressure will build over the Midwest and Northeast, pushing readings to slightly higher than normal. However, a very active pattern will bring many weather systems with showers, thunderstorms and will set cooler-than-normal temperatures, possibly for a longer period of time. However, none of these systems will be cold enough to push readings sub-zero, and until freezing temperatures occur, the market won’t have much to grind higher on. Meanwhile, the southern and most of the western US will remain slightly warmer than usual.

Inventory data eyed

The recent comfortable readings are projected to lead to another quite larger than the average build due to be reported this Thursday. According to analysts’ preliminary estimates, the government agency will likely report a build of 104-110 billion cubic feet in the week ended October 3rd, exceeding last year’s 91-bcf injection during the comparable week and the five-year average increase of 84 bcf. Readings above the projected range will be considered as bullish, and vice versa.

Next week’s build is anticipated to come leaner as warm weather in the high-consuming south states will stoke cooling demand, while the following injections are expected to fall further as we move through the autumn season.

“It’s helpful the southern US will remain quite warm, especially over Texas, and at times California, which will aid in cooling demand,” analysts at NatGasWeather.com said. “However, it’s now becoming all about the northern US as they need to start carrying the load as weekly builds will soon be dropping off precipitously and it’s important increasingly colder weather patterns keep up. We continue to believe colder temperatures need to look more intimidating to get the markets attentions.”

According to AccuWeather.com, the high in New York on October 11th will be 62 degrees Fahrenheit, 3 below average, while lows will drop to 48 degrees, also 3 below usual. Readings are expected to range between 67 and 54 degrees on October 17th, 4 above normal. Chicago will range between 52 and 44 degrees on Saturday, compared to the seasonal 65-47, before warming to 65 degrees on October 17th, when lows will exceed the average 45 by 5 degrees.

To the South, the high in Houston on October 11th will be 87 degrees Fahrenheit, 5 above normal, before cooling off to 77-81 degrees through October 19th. On the West Coast, Los Angeles will see readings max out at 92 degrees on October 12th, 13 above the average, before a following cooling pushes temperatures to the mostly seasonal 75-77 degrees between October 15th and October 17th.

Daily pivot levels

According to Binary Tribune’s daily analysis, November natural gas futures’ central pivot point stands at $3.880. In case the contract penetrates the first resistance level at $3.922 per million British thermal units, it will encounter next resistance at $3.990. If breached, upside movement will probably attempt to advance to $4.032 per mBtu.

If the contract breaks its first support at $3.812 per mBtu, it will likely extend its drop to $3.770. If the second key support zone is breached, the power-station fuel’s downward movement may extend to $3.702 per mBtu.