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James Hyerczyk
Natural Gas

Natural gas futures are trading flat-to-lower early Monday on low volume as most traders have taken to the sidelines ahead of today’s mid-day weather update. Three consecutive days of sideways price action is being caused by the U.S. and European weather models that remain at odds over long-term cold.

Speculative bulls are also getting little help from spot gas prices that are trading “lower as comfortable temperatures were projected to keep demand light through the early part of the week ahead,” according to Natural Gas Intelligence.

At 06:48 GMT, December Natural Gas futures are trading $2.514, down $0.003 or -0.12%.

Short-Term Weather Outlook

According to NatGasWeather for October 21 to October 27, “What was once a tropical system is now just showers exiting the Northeast. The rest of the southern and eastern US will be quite comfortable the next few days with highs of 60s to 80s. However, a strong weather system and associated cold shot is currently advancing into the northern and central US after bringing stronger demand for heating as lows drop into the 20s & 30s. This system will slowly reach the East Wednesday but weakening upon arrival. A break between cold shots is expected next weekend over the South & East ahead of an even colder system upstream over the Rockies/North Plains. Overall, moderate demand, increasing to high as the week progresses.”


Mid-Term Weather Outlook

The first cold shot is slated for Wednesday (Oct. 23) through next Saturday (Oct. 26), with potentially a brief break Oct. 27-28, according to NatGasWeather.

“This first cold shot will drop lows into the 20s and 30s across the Midwest and Northeast, locally colder, but the more ominous one is expected October 29-November 2 and where lows are more likely to dip into the teens to 30s for widespread stronger-than-normal demand,” the firm said.

“The latest GFS (American Model) also suggested cold would last into November 3-4,” NatGasWeather said. It does, however, see risks for a few Heating Degree Days (HDDs) to be lost for the last week of October, “but with the potential for cold lasting longer into the first several days of November.”

U.S. Energy Information Administration

On Thursday, the EIA reported a 104 Bcf injection into natural gas storage inventories for the week-ending October 11, marking the third time in four weeks that stocks have risen by at least 100 Bcf. Traders were expecting a triple-digit build and the actual number fell inside the expected range.

Last year’s EIA report came in at 82 Bcf. The five-year average injection is 81 Bcf.

Total working gas in storage ended the period at 3,519 Bcf, 494 Bcf above year-ago levels and 14 Bcf above the five-year average.

Daily December Natural Gas

Daily Forecast

The cold weather is coming, but the price action suggests traders are ready for it. Furthermore, we’re looking at a series of 2 to 3 day cold shots, not a long-term cold system or Arctic Dome situation.

Volatility could hit the market when the midday update is released.

If the forecast changes to more intense or longer periods of cold temperatures, then prices could spike higher. Taking out the two tops at $2.564 and $2.568, for example, could trigger an acceleration into the 50% level at $2.636.

If the forecast calls for more mild temperatures or a short-term duration of cold then look for a break under a technical pivot level at $2.478. If this creates enough downside momentum then look for the selling to possibly extend into the main bottom at $2.388.

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