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James Hyerczyk
Natural Gas

Natural gas futures gapped higher early Sunday in reaction to the shutdown of the world’s largest oil processing facility in Saudi Arabia after a series of drone strikes damaged the facility. Saudi Energy Minister Abdulaziz bin Salman said the attacks also led to a halt in gas production that will reduce the supply of ethane and natural gas liquids by 50%.

At 11:39 GMT, November natural gas futures are trading $2.707, up 0.054 or +2.04%.

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The market opened higher because any news of a supply disruption usually brings in the speculative buyers even if they don’t know what the impact will be.

Short-Term Weather Outlook

According to NatGasWeather for September 16 to September 22, “Unseasonably strong hot high pressure continues across Texas and the South with highs of upper 80s to 90s for strong late season demand. It’s also very warm to hot across much of the central US, although cooling mid-week back into the 70s to mid-80s. Weather systems will track into the West with showers and highs of upper 50s to lower 70s for local heating needs. The important corridor from Chicago to New York City will be comfortable most days with highs of 70s to 80 for very light demand. Overall, national demand will ease from high to moderate by late in the week.”


U.S. Energy Information Administration Weekly Storage Report

The EIA reported last week that domestic supplies of natural gas rose by 78 billion cubic feet for the week-ended September 6.

Traders were looking for the EIA storage report for the week-ending September 6 to show another above-average build.

Total stocks now stand at 3.019 trillion cubic feet, up 393 billion cubic feet from a year ago, but 77 billion below the five-year average, the government said.

Daily November Natural Gas

Daily Forecast

The early price action on Monday indicates that trader reaction to $2.691 will likely set the tone for the rest of the session. If a rally above this level gains traction then there is room to run to $2.843. A sustained move under $2.691 could trigger a break into $2.585. The trend will change to down on a trade through $2.551.

Last week’s price action and especially Friday’s suggests there are still speculators holding short positions and the speculative longs are still looking to chase them out. Furthermore, it’s my guess that they aren’t likely to keep rolling over in October and November especially after last year’s huge spike to the upside in early November. I’ve always been told that a short-squeeze won’t end until the weakest short is forced out of the market.

Now the shorts have to deal with the problems in Saudi Arabia that may or may not have an impact on U.S. prices. However, when you put together words and phrases like “halt production” and “reduce supply” in a sentence, speculators are likely to buy first and ask questions later.

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