Natural gas trading outlook: futures struggle as mild weather crimps demand

Natural gas rose on Tuesday but remained not far off Mondays freshly hit 11-month low as weather forecasts for the first ten days of November called for mild weather across the central and southern US, limiting heating demand.

On the New York Mercantile Exchange, natural gas for delivery in November traded at $3.572 per million British thermal units at 10:15 GMT, up 0.31% on the day. Prices varied in a daily range of $3.581-$3.555. The power-plant fuel slid 1.7% on Monday to $3.561, having earlier touched a fresh 11-month low of $3.547.

According to NatGasWeather.com, natural gas demand over the next seven days will rise from low to moderate, compared to normal, while keeping a neutral weather trend between November 4th and November 10th.

The southern and eastern parts of the US will enjoy above-normal temperatures today, with highs reaching the 70s and 80s, inducing light late season cooling demand.

However, cooler conditions will set up as a weather system crossing from the Northern Rockies into the Midwest brings showers and colder-than-usual readings on Wednesday and Thursday. An even more impressive Canadian weather system will track on Friday across the Great Lakes and Northeast, introducing the first widespread below freezing temperatures and light snowfall. Below-average temperatures will also push into the Southeast, sending overnight lows into the upper 30s.

A brief warm-up is expected for the Midwest and Northeast early next week, before another cold system hits the region, keeping readings slightly below normal. Pacific weather systems will keep conditions over the Northwest also cooler.

However, the bullish factors end here as the rest of the US is expected to remain dominated by seasonal, and in some areas warmer-than-seasonal weather. Readings over the central and southern US, including Texas, will be higher-than-average over the next two weeks, limiting national heating demand. Although the natural gas market will draw some support from the cold Canadian system which is set to hit the Midwest and Northeast at the end of this week, overall bearish sentiment will still limit gains.

Temperatures

According to AccuWeather.com, readings in New York on November 1st will range between 38 and 46 degrees Fahrenheit, well below the seasonal 46-59, before jumping back to the above-average 52-60 on November 5th.

Boston will see readings drop to 34 degrees on November 1st, 8 below usual, followed by a rebound to 48 degrees five days later. Chicago will range between 36 and 46 degrees on Friday, compared to the average 41-57, but will warm up to the mostly seasonal 43-54 on November 5th.

Down South, temperatures in Houston will max out at 79-81 degrees through November 4th, 2-3 above normal, before falling to seasonal levels over the next 10 days. On the West Coast, Los Angeles will reach 87 degrees tomorrow, 10 above usual, before easing to 70 degrees on November 1st.

Supplies

The Energy Information Administration reported on Thursday that US natural gas stockpiles rose by 94 billion cubic feet (bcf) during the week ended October 17th, compared to analysts’ projections for a jump in the range of 95-98 bcf. This was the 27th consecutive above-average weekly build.

Total gas held in US storage amounted to 3.393 trillion cubic feet as of last week, narrowing the gap to the five-year average of 3.731 trillion to 9.1%. Year-on-year, gas levels were 9.0% lower.

The EIA is expected to report the 28th consecutive above-average weekly build this Thursday, given last week’s mostly seasonal and above-seasonal readings across the US. Natural gas inventories are expected to have risen by around 90 billion cubic feet in the seven days through October 24th, which would narrow the five-year average deficit by another 20+ bcf.

Pivot points

According to Binary Tribune’s daily analysis, November natural gas futures’ central pivot point stands at $3.584. In case the contract penetrates the first resistance level at $3.621 per million British thermal units, it will encounter next resistance at $3.681. If breached, upside movement may attempt to advance to $3.718 per mBtu.

If the energy source drops below its first support level at $3.524 per mBtu, it will next see support at $3.487. If the second key support zone is breached, the power-station fuel’s downward movement may extend to $3.427 per mBtu.

In weekly terms, the central pivot point is at $3.642. The three key resistance levels are as follows: R1 – $3.726, R2 – $3.828, R3 – $3.912. The three key support levels are: S1 – $3.540, S2 – $3.456, S3 – $3.354.