Analysis and Recommendations: December Natural Gas futures fell to their lowest level since September 8 despite a friendly weekly supply/demand report
Analysis and Recommendations: December Natural Gas futures fell to their lowest level since September 8 despite a friendly weekly supply/demand report from the Energy Information Administration. On Thursday, the EIA reported that U.S. natural gas stocks increased by 105 billion cubic feet for the week-ending October 3. Trader had priced in an expected increase of 108 billion cubic feet. The five-year average for this week is 84 billion cubic feet.
Natural Gas futures continued to consolidate near the low end of its two month range as traders adjusted their positions to shifts in supply and changing weather patterns. Prices were under pressure most of the week due to last week’s surge in supply and a warmer weather pattern in several key demand areas.
The consolidation taking place is typical for this time of year known as the “shoulder season”. This is the time when the weather is neither too hot nor too cold to trigger any significant shifts in demand from consumers. At the same time, producers are trying to supply as much gas to the market as they can ahead of the winter heating season.
Last year’s natural gas rally started on November 8 at much lower price levels and much higher supply levels. This year, stockpiles are about 10.1% below their levels of a year ago and about 10.5% below the five-year average. With the heating season rapidly approaching, U.S. stock piles are expected to be at about 3.55 trillion cubic feet, the lowest level since 2008, but still considered adequate. In 2013, the heating season started with 3.8 trillion cubic feet in inventory.
If the better-than-expected couldn’t turn the market higher on Thursday then look for renewed selling pressure today. There may be a short-covering rally into the close if traders decide to book profits ahead of the week-end.
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James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.