The main catalyst for Henry Hub natural gas today is going to be the EIA storage report scheduled for 10:30 a.m. Eastern. The immediate task will be to determine whether today’s publication will need to show a change in the balance ahead of winter.
Comparison Numbers
After all, the starting point is 3,567 billion cubic feet of Lower 48 working gas after the previously reported 67 billion cubic feet injection. That left a 45 billion cubic feet surplus to the five-year average and a 145 billion cubic feet deficit to the previous year. This establishes a baseline for today’s comparison rather than a forecast of the new injection or a claim that stocks have remained unchanged.
For Thursday’s report, the first useful test is whether the surplus to the updated seasonal average expands or contracts. If there is a positive injection, there still could be a tightening of the relative balance if it is smaller than the seasonal norm. A larger stock level does not automatically mean that the market has suddenly become looser relative to the time of year.
NOAA’s Weather Outlook
Weather will provide the freshest verified forward-looking input. NOAA’s Climate Prediction Center issued its latest memo at 3 p.m. yesterday. For October 27 through 31, it favored above-normal temperatures across most of the eastern United States, with exceptions in some parts of the Northern Plains and Northern New England. In its October 29 through November 4 outlook, it also favors above-normal temperatures across the eastern half of the country in general.
If that pattern does, in fact, play out, it could limit early heating demand compared with a colder outcome. This effect will obviously depend on the actual temperatures, the duration, and where the demand is concentrated. Above normal refers to the seasonal baseline. It does not necessarily mean that heating demand would suddenly disappear. Conversely, colder revisions in major consuming regions could quickly change the demand outlook before any of that weather occurs.
Natural Gas Price Forecast
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See all Natural Gas forecastsRegional Details Matter
In the previous release, South Central stocks were 1,097 billion cubic feet against a 1,132 billion cubic feet five-year average, even though the national total was above its own average. The national headline does sometimes conceal the less comfortable regional balance. The chart below shows the latest verified comparison.
Supply and LNG demand are the next checks, but today’s feed gas and pipeline conditions do not give us a clear picture. There is no production outage or export increase seen easily, and in analytical terms, sustained export consumption can absorb gas that would otherwise enter storage, while additional production can offset that demand.
Scenarios
For Henry Hub, the constructive scenario would involve smaller storage injections as colder weather or stronger export consumption absorbs the supply. The less supportive scenario would combine mild consuming-region temperatures with production sufficient to rebuild the seasonal cushion. As things stand right now, that seems to be what we are seeing and has a large part to play in why prices are dropping.
Today’s storage release will describe a completed reporting week, while the weather outlook concerns late October and early November. A forecast revision could change expectations for future demand before storage reflects it. A small injection and a mild forward outlook can therefore coexist without contradiction, because they describe two different time periods.
A constructive Thursday combination would be a smaller seasonal cushion and colder revisions in major consumer regions. A less supportive combination would be a rebuilding cushion and continued eastern warmth. Neither is a known quantity at the moment, so traders will have to look to official channels to sort out this information.
Technical Setup
From a technical analysis standpoint, it certainly looks as if it is an oversold market. Playing a bounce would be exactly what I’m looking for, but I would have to be clear of the 10:30 a.m. Eastern report to get involved. I would need to see a smaller injection into storage to become bullish. This oversold condition certainly sets up the market nicely from a technical standpoint, but the fundamentals need to align as well.