Natural gas trading outlook: futures at 11-month low as mild October limits demand

Natural gas fell for a sixth day and traded near the lowest level since mid-November as weather agencies forecast overall comfortable temperatures across most of the US throughout October. Market players eyed this weeks supply data, as well as weather systems in early-November which could bring widespread freezes.

Natural gas for delivery in November slid 0.41% to $3.655 per million British thermal units by 11:26 GMT, having earlier fallen to an 11-month low of $3.631. The contract fell for a fifth consecutive day on Monday, having closed 2.55% lower at $3.670.

According to NatGasWeather.com, natural gas demand over the next seven days will be low-moderate compared to normal, with weather throughout October expected to keep a neutral trend.

Another weather system is expected to track across the Great Lakes and Northeast today, carrying showers and pushing temperatures to slightly below normal throughout the week. Overnight lows, as previously reported, will drop to the 40s and 30s with localized freezes, before the system gradually weakens.

However, the rest of the US will enjoy mostly comfortable little-above-average temperatures, inducing only light heating and cooling demand. Highs over the Southwestern US and Plains will reach again the 70s and 80s over the next seven days.

Market players focus remained on how weather patterns will play out in the beginning of November when cooler Canadian air will approach the northern US. It is still unclear how much of it will track across the US. There could be widespread freezing conditions, but the system may also end up contained in the far west, leaving the Northeast and other high-consumption regions unaffected. Weather data is not concrete enough to show how far will the Canadian cold air pool spread, giving the markets little reason to rally before the end of October.

“It remains up to early November weather patterns to bring colder temperatures if builds are going to keep pace with falling weekly averages,” NatGasWeather.com analysts said in an e-mailed note.

Temperatures

According to AccuWeather.com, readings in New York on October 23rd will range between 52 and 58 degrees Fahrenheit, compared to the average of 48-52, while the low in Boston will be 52 degrees, 8 above usual. Chicago will range between 42 and 52 degrees tomorrow, below the average of 44-60, before warming up to 57-68 degrees on October 26th.

Down South, highs in Texas city through October 28th will range between 81-83 degrees, compared to the average of 78-79, before cooling down to the seasonal mid-70s as of October 29th. On the West Coast, Los Angeles will reach 85 degrees on October 23rd, 7 above usual, before the mercury drops to the seasonal mid and upper 70s as of October 25th.

Supplies

The Energy Information Administration reported on Thursday that US natural gas inventories rose by 94 billion cubic feet (bcf) in the seven days through October 10th, exceeding analysts’ projections for a build in the range of 89-92 bcf and the five-year average gain of 78 billion. This was the 26th consecutive above-average weekly build.

Total gas held in US storage stood at 3.299 trillion cubic feet, narrowing the deficit to the five-year average to 9.9%, down from 10.5% a week earlier, and also shrinking the gap to last year’s 3.643 trillion to 9.4%, from 10.1% during the preceding week.

Due to last week’s mostly seasonal and in some regions above-normal temperatures, analysts’ expectations for the build due to be reported on October 23rd ranged between 95 and 98 billion cubic feet, well above the five-year average net injection of 70 billion cubic feet. A triple-digit build would be considered strongly bearish, while a net injection of 90 bcf and below – the opposite.

Pivot points

According to Binary Tribune’s daily analysis, November natural gas futures’ central pivot point stands at $3.692. In case the contract penetrates the first resistance level at $3.723 per million British thermal units, it will encounter next resistance $3.775. If breached, upside movement may attempt to advance to $3.806 per mBtu.

If the energy source falls below S1 at $3.640 per mBtu, it will next see support at $3.609. If the second key support zone is breached, the power-station fuel’s downward movement may extend to $3.557 per mBtu.

In weekly terms, the central pivot point is at $3.812. The three key resistance levels are as follows: R1 – $3.909, R2 – $4.052, R3 – $4.149. The three key support levels are: S1 – $3.669, S2 – $3.572, S3 – $3.429.