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James Hyerczyk
Natural Gas

Natural gas futures prices retreated last week despite lower natural gas production and stronger export demand. These two factors are likely to be the forces that drive prices higher throughout the winter heating season, but not until the weather starts to cooperate.

Increasing export demand and supportive government storage data should’ve underpinned prices, but a warmer turn in the latest weather forecast capped gains, encouraging bullish traders to trim their lofty long positions.

Last week, December natural gas futures settled at $3.195, down $0.076 or -2.32%.

Short-Term Weather Outlook

Ahead of the weekend, multiple reports were showing hints of warmer weather creeping up in some models, and on Friday, both the American and European datasets trimmed demand from the back of the 11-to-15-day outlook.

Bespoke Weather Services said the models moved toward strong upper-level ridging anchored over the Midwest, suggesting that risks to the current forecast still were to the warmer side after the first couple of days of November. There also was the possibility of a “strongly warm, very low demand pattern” setting up east of the Rockies in the November 5-15 time frame.

Bespoke also said the market still has the coming week’s cold to deal with, especially in the Rockies to Midwest, “but this has been a constant in the forecast for a while now, so should be factored into market sentiment solidly at this point.”

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US Energy Information Weekly Storage Report

The EIA reported Thursday that domestic supplies of natural gas rose by 49 billion cubic feet for the week ended October 16. On average, supplies were expected to climb by 51 billion cubic feet (Bcf) for the week, according to analysts polled by S&P Global Platts.

Total stocks now stand at 3.926 trillion cubic feet (Tcf), up 345 Bcf from a year ago and 327 Bcf above the five-year average, the government said.

Weekly Forecast

Declining production and rebounding LNG exports should be enough to underpin prices with $3.146 the first level to watch for support. The weekly chart indicates that the best value area for buyers is $3.004 to $2.917.

Even though we’ve identified the key support areas for the arrival of new buyers, we’ve not sure the buying will be strong enough to trigger a meaningful rally until the weather starts to cooperate.

It is possible for the market to find near-term support, but remain rangebound if November ends up warmer than normal. Right now, two of the three bullish indicators are in place for a rally – LNG demand and lower production – the market just needs a jolt of cold weather to jumpstart the next rally. Until then, we could see a mostly sideways-to-lower trade.

For a look at all of today’s economic events, check out our economic calendar.

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