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James Hyerczyk
Natural Gas

Natural gas futures are trading nearly flat on Thursday ahead of the release of the government storage report later in the session. A growing disparity between weather models was primarily responsible for yesterday’s steep sell-off. Expectations of another loose government storage report also weighed on prices. Spot prices were no help, finishing mixed for a second session.

At 09:52 GMT, November natural gas are trading $2.236, up $0.002 or +0.09%.

Weather Models Remain at Odds

Analysis compiled by Natural Gas Intelligence (NGI) showed a growing disparity between weather models from Bespoke Weather Services, NatGasWeather and American Global Forecast System.

The overnight data reflected an even larger discrepancy as the European models trended a little warmer overall and the American ensembles moved in the colder direction, according to Bespoke Weather Services.

“This is opening up a decent gap between the two models in terms of projected demand,” Bespoke chief meteorologist Brian Lovern said.

The American data is stronger with the six- to 10-day cold shot and doesn’t show as much eastern rewarming as the European data, Bespoke said. It also implies a colder 16- to 20-day than its European counterpart.

“There is definitely some notable cold on the maps, but as of right now, it hangs back in areas that are not as important for natural gas usage,” Lovern said.

NatGasWeather said there is no change to the bigger picture as a swing to stronger demand is still on track late this week through next week as cold shots sweep across the central and northern United States. Weather is expected to then turn “quite bearish” October 19-23 as warm high pressure returns across much of the eastern half of the country. NatGasWeather also continues to view weather patterns as unsupportive unless there were to be much colder trends in the 11- to 15-day period.

The midday American Global Forecast System data, however, lost a little demand for early next week and October 20-23, but added demand late next week by stalling cold air over the eastern United States.

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U.S. Energy Information Administration Weekly Storage Report

The EIA report is expected to show continued looseness and possibly “extreme looseness” in the market, Trader estimates are ranging from an 80 Bcf injection to a 107 Bcf injection for the week ended October 4.

Wall Street Journal analysts are looking for a median build of 94 Bcf. Bloomberg predicts a 99 Bcf median and NGI projected a 94 Bcf injection.

The EIA reported a 91 Bcf build for the same week last year, and the five-year average stands at 89 Bcf.

Daily Forecast

The momentum is clearly to the downside, which means traders have committed to a bearish weather forecast and government storage report. Technically, look for weakness as long as the market remains under $2.302.

The first target is $2.207, followed by bottoms at $2.185 and $2.135.

A bullish miss on government report will likely trigger a short-covering rally, but I don’t think it will change the trend.

The trend will only change if the weather forecasts suddenly introduce the possibility of prolonged cold temperatures.

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