Isaias Has Gas Shorts Thinking Twice
November Nymex Natural Gas has been climbing since the open Wednesday. The shorts have a storm to worry about now. Isaias is the first real Gulf supply threat of the season. Thursday’s storage number looks light on top of it.
I wouldn’t call the storm bullish. It could shut in some supply, but it could also cut demand. Nobody wants to press the short side into it, though, not with gas already off last week’s low.
The supply picture is still heavy. Production is near record territory, autumn weather is warm across much of the country and storage is above the five-year average. The storm and Thursday’s EIA number are moving the short-term trade. The bigger balance hasn’t budged.
At 11:23 GMT, November natural gas futures are trading at $3.197, up $0.083 or +2.67%. The contract opened at $3.114, reached $3.199 and bottomed at $3.110.
Daily November Natural Gas Futures Technical Analysis
November natural gas futures are trading higher Wednesday after extending the rebound from last week’s low at $2.912. The main trend is down according to the daily swing chart, but counter-trend upside momentum is increasing.
The market crossed to the strong side of the 50-day moving average at $3.038 earlier this week and is now testing the next resistance cluster. The first resistance area is $3.210 to $3.216. Taking out this area could extend the rally into $3.264, followed by the minor top at $3.291.
A trade through the main top at $3.395 will change the main trend to up.
On the downside, the 50-day moving average is the first support. A failure to hold it would weaken the recovery and put $2.912 back in play.
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See all Natural Gas forecastsTropical Storm Isaias Is Now a Gulf Energy Story
Traders can’t ignore this one anymore. Tropical Storm Isaias is sitting over warm water and forecasters expect it to be a hurricane by Thursday. The tracks have it coming ashore Friday or Saturday somewhere along the northern Gulf Coast, from eastern Louisiana across Mississippi and Alabama to the Florida Panhandle.
Producers are already pulling non-essential crews off platforms.
So nobody’s trading Isaias as a straight supply shock. It can take gas off the market and knock power burn and LNG feedgas demand down right along with it. Track, strength and how long the shut-ins last are what the market’s waiting to see.
Thursday’s Storage Report Is Leaning Friendly
The call for Thursday’s EIA report is 79 Bcf for the week ended October 2. Last year’s build for the same week was 77 Bcf. The five-year average is closer to 96 Bcf, so this is another light one.
Last week’s build was light too. Storage still has a 79 Bcf cushion over the five-year average. It’s running behind last year.
Another 79 Bcf build chips at the cushion without erasing it.
Storage is fine going into winter. It just isn’t filling at the usual pace for this time of year. Light builds don’t make a bull market by themselves. Shorts get a lot less brave when a storm, a colder run or stronger LNG demand shows up on top of them.
The EIA and industry projections put end-of-October inventories somewhere between 3,850 Bcf and 3,969 Bcf. That’s plenty of gas. Once injections stop, the market leans on the weather.
European Gas Is Helping the LNG Story
European gas prices moved higher Tuesday with storage back in focus over there. Europe’s inventories were 73% full as of October 4. The five-year seasonal average is 88%.
Europe doesn’t have much room for a cold surprise. It has every reason to keep buying cargoes ahead of winter. That’s support for November gas.
Feedgas flows to U.S. export terminals were up a little from the week before. That’s also the flow Isaias can interrupt along the Louisiana coast.
Near-Record Output Is Still Capping the Rally
Lower-48 dry-gas production was running ahead of a year ago again Tuesday. That’s what keeps rallies from getting away from sellers. Demand is up from a year ago and LNG flows are steady. Supply is just running high enough to keep the market covered.
Commodity Weather Group has above-average temperatures across the western two-thirds of the country through October 10. That’s not a heating-demand setup. It’s also why Tuesday’s European rally didn’t turn into a bigger breakout for November.
Baker Hughes had the gas rig count down two last week, after reaching a three-year high. A two-rig decline does not make a supply story.
What to Watch
Isaias comes first. Producers are already clearing platforms. The market is still waiting on the track and strength to see how much supply comes off and how much demand goes with it.
Thursday’s EIA report is next. Another light build doesn’t wipe out a surplus with production running this high.
November gas climbed from the open Wednesday and was pressing into $3.210 to $3.216 by late morning in London. The bias is to the upside over the near term while the market stays above the 50-day moving average. The main trend remains down, so buyers still have work to do before the rally becomes more than a counter-trend move. That changes at $3.395.
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