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James Hyerczyk
Natural Gas

Natural gas futures are edging higher early Thursday on short-covering and position-squaring ahead of today’s weekly government storage report. Prices plunged the previous session, erasing earlier gains as traders raised doubts over the durability of the late October cold that had been creeping into the weather forecasts all week. Sellers also took control on the back of a forecast calling for a triple-inventory build.

At 08:54 GMT, December natural gas futures were trading $2.502, up $0.007 or +0.28%.

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Prices were higher early Wednesday, but sellers took control at $2.564, putting in the intraday high slightly below the October 4 top at $2.568. Bespoke Weather Services also saw “some solid technical resistance.”

Prices “then continued lower as the midday weather models showed less potential for strong, lasting cold,” the forecaster said. “The fundamental state, while marginally tighter the last couple of days, remains very weak, and without cold, easily still supports downside risk to current prices. It is up to cold to support the market.”

Bespoke went on to say that the market will need to see a “solidly cold” pattern for late October into early November to sustain a rally.

U.S. Energy Information Administration Weekly Storage Report

Early estimates are currently pointing to a triple-digit build from today’s EIA weekly storage report. This would mark the third 100 Bcf-plus injection in the past four weeks. Furthermore, an injection in the triple digits would also comfortably top both the year-ago 82 Bcf build and the five-year average 81 Bcf for this week, according to Natural Gas Intelligence (NGI).

Bloomberg analysts are predicting a median 108 Bcf estimate. Intercontinental Exchange EIA Financial Weekly Index futures settled Tuesday at 108 Bcf. NGI’s model predicted an injection of 115 Bcf.


Short-Term Weather Outlook

According to NatGasWeather for October 17-23, “A weather system with showers and gusty winds will exit the Northeast today with chilly conditions left in its wake with highs of upper 40s to 60s. Texas and the South will be mostly comfortable with highs of upper 60s to lower 80s, although hotter over the Southwest & Florida. High pressure and above normal temperatures will gain across the southern and eastern US this weekend with near perfect highs of 60s to 80s, while slightly cool over much of the West. Overall, decent demand Thursday through Friday, then lighter this weekend into early next week.”

Daily Forecast

The key resistance on the chart remains $2.564 to $2.568. Taking out this area will change the main trend to up. This could trigger a surge to the upside with $2.636 the minimum upside target. However, we’re not likely to get back to these prices unless the late October/early November cold weather is put back into the forecast.

The short-term range is $2.568 to $2.388. Its 50% level is $2.478. Trader reaction to this price is likely to determine the direction of the market on Thursday.

A bigger-than-expected storage build today is likely to drive the December natural gas futures contract to the bearish side of the 50% level. This would put the market in a position to challenge last week’s low at $2.388.

A smaller-than-expected storage will drive prices over $2.478, but any rally is likely to stall near $2.564 to $2.568 unless the cold weather forecast reemerges.

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