Natural gas trading outlook: futures rebound to pare weekly losses

October 3, 2014 9:34 am

Natural gas futures were climbing during early trade in Europe today, as the market rebounds after the slump of the previous two sessions. Traders eye the ominous cold pattern, set to lower temps for the northern US by some 20 degrees into mid-October.

Front-month natural gas futures for settlement in November on the New York Mercantile Exchange traded at $3.990 per million British thermal units (mBtu) at 9:32 GMT, up 1.48% for the day. Prices ranged from $3.948 to $3.995 per mBtu. The contract dropped 2.26% on Thursday and was down 2.3% for the week through the session’s close.

Natural gas prices slumped Thursday, after the US reported a bigger-than-expected build of natural gas in storage.

The US Energy Information Administration (EIA) reported on natural gas storage levels for the week through September 26th today, logging the weekly build at 112 billion cubic feet, above the expected 105-109 Bcf, prompting a dive for natgas prices. The build was the twenty-fourth straight bigger-than-average injection, and narrowed the deficit to the five-year deficit to just 11.4%, down from 12.5% last week and more than 50% in March.

“We thought if prices sold off after the EIA report it could turn into a nice buying opportunity with the coming cooler pattern upon us. Today might serve as a good test of this,” analysts at NatGasWeather.com wrote in a note to clients today. “It’s certainly bearish deficits are now less than 399 Bcf, and they will look even more so when another 20-30 Bcf gets whacked off with next week’s huge build.”

While next week’s build will be quite bigger than average, the following reports will post leaner figures, as cooler weather makes due through the northern US. A set of cooler Canadian systems will be tracking in quick succession through the third week of October, with each tapping progressively more of the very cold, Arctic air over northern Canada. While its too early to call Winter, the pattern will provide significant upward pressure on natgas prices.

“Additional weather systems should follow through the third week of October, while likely getting progressively colder and more intimidating,” the analysts at NatGasWeather.com wrote.”We need to keep watching intently to see when these cool blasts turn into cold outbreaks, as we aren’t far off.”

US weather outlook

While the northern parts of the US are bracing for a prolonged period of cooler temperatures, spurring some early heating, California readings are pushing into the 100s, bumping up cooling demand.

New York will have a warmer than usual Friday, according to AccuWeather.com, with temperatures at 60-70 degrees Fahrenheit, a few above average. Temps will be lower for the weekend, with highs in the upper 60s tomorrow and in the lower 60s for Sunday. Chicago will be quite cooler today, with temps between 39-59 degrees, with rains and winds. Tomorrow will be even chillier, with highs only in the upper 40s, with readings rising only slightly for Sunday.

Down South, Houston will also be cooler than yesterday, with readings hardly seen topping 85, which is actually normal for the season. Temps will drop several degrees tomorrow, before climbing back to average for Sunday. Over on the West Coast, Los Angeles is heading for triple-digit readings today, 20 above average. Saturday will also be just as hot, while Sunday will ease highs by a few degrees, before temps drop further into next week.

Technical support and resistance levels

According to Binary Tribune’s daily analysis, November natural gas futures’ central pivot point stands at $3.966. In case the contract penetrates the first resistance level at $4.025 per million British thermal units, it will encounter next resistance at $4.117. If breached, upside movement will probably attempt to advance to $4.176 per mBtu.

If the energy source drops below its first support level at $3.874 per mBtu, it will next see support at $3.815. If the second key support zone is breached, the power-station fuel’s downward movement may extend to $3.723 per mBtu.

Do you think natgas prices will close in the red for the week?

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