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James Hyerczyk
Natural Gas

Natural gas futures are inching higher on Friday after posting a dramatic technical reversal bottom on Thursday. The move is not expected to change the trend to up, but it could trigger the start of a short-term counter-trend rally, designed to alleviate some of the excessive selling pressure.

The market finished higher on Thursday after hitting its lowest level since August 23 at $2.207. The rally was likely fueled by profit-taking and short-covering as selling pressure dried up as the market approached a pair of bottoms at $2.185 and $2.135.

Although the government’s weekly storage report came in on the high side of estimates, the price action after its release suggests the market may have been looking for a much larger figure.

At 09:26 GMT, November natural gas futures are trading $2.333, up $0.004 or +0.17%.

U.S. Energy Information Administration Weekly Storage Report

On Thursday, the EIA reported a 112 Bcf injection into storage inventories for the week-ending September 27.

Bloomberg analysts were looking for an injection of 100 Bcf to 108 Bcf, with a median of 106 Bcf. A Wall Street Journal survey of analysts predicted a range of 95 Bcf to 105 Bcf, with a median of 106 Bcf. Natural Gas Intelligence (NGI) predicted a 109 Bcf injection and Intercontinental Exchange Futures settled Tuesday at a 110 Bcf build.

Last year, the EIA reported a 91 Bcf injection, and the five-year average stands at 83 Bcf.

Total stocks now stand at 3.317 trillion cubic feet, up 465 billion cubic feet from a year ago, but 18 billion below the five-year average, the government said.

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Short-Term Weather Outlook

According to NatGasWeather for October 4 to October 10, “Strong high pressure will dominate the South & East into Saturday with highs of 80s to lower 90s for strong late season demand. Mild to chilly conditions continue across the northern US with lows dropping into the 20s to 40s for modest early season heating demand. Fresh cooling will spread across the Midwest and Northeast early next week with lows of upper 30s to 40s. Across the southern US, high pressure will ease late in the weekend through next week with mostly comfortable highs of 70s and 80s besides the hotter Southwest. Overall, demand will be dropping to moderate-low late this weekend through next week.”

Daily Forecast

We could be looking a couple of days of technically driven price action with the first objective $2.368 to $2.440. If the market is poised for a normal 50% to 61.8% retracement of its recent break then $2.476 to $2.539 will become the next major objective.

With the trend down, we’re likely to see short-sellers re-emerge on tests of these retracement levels with the best area $2.476 to $2.539.

Fundamentally, the weather will be closely watched starting Monday because some forecasts are starting to trend cooler toward the middle of the month.

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