Natural gas futures are lower on Tuesday after a volatile but slightly better start to the week. This type of early price action usually hints at a possible change in the weather forecast overnight, but since most of this knowledge is controlled by insiders, we may have to wait for the steady US open. before being sure.
The price action also suggests that traders are hesitant to chase the market higher at current price levels and may be waiting for a pullback into a value zone.
As of 0734 GMT, October natural gas futures are trading at $9.229, down $0.107 or -1.15%. On Monday, the United States Natural Gas Fund ETF (UNG) settled at $31.97, down $0.02 or -0.06%.
On Monday, traders were surprised by the September expiration of the natural gas futures contract and weather patterns showing hot flares over the next 1-2 weeks. Additionally, “spot gas was also mostly higher on Monday, with West Coast markets seeing the largest increases during another heat wave in the region,” according to Natural Gas Intelligence (NGI). .
Short term weather outlook
Besides the September futures contract expiration, a change in the weather forecast over the weekend made traders jittery on Monday. According to NatGasWeather, cooler temperatures are expected to dominate in the coming weeks due to seasonal trends, however, one of its key weather patterns has proven too difficult to ignore.
The Global Forecast System (GFS) has added 15 CDDs for the next 15 days, according to NatGasWeather. European models also added some CDD to the outlook.
Traders monitor storage shortfall
After the release of last week’s report from the Energy Information Administration (EIA), supply was 353 billion cubic feet (12%) below the five-year average and 268 billion cubic feet (9%) below compared to the same time last year.
Powerhouse Brokerage LLC noted that the average rate of injections into storage is 6% below the five-year average so far in the recharge season, which runs through the end of October, NGI reported.
If this rate of storage injections matched the five-year average of 9.8 Bcf/d for the remainder of the recharge season, total inventories would reach 3,292 Bcf by October 31. This would be 353 Bcf less than the five-year average of 3,645 Bcf for this time of year.
Although we are looking for slight market weakness in the near term, the market should still be supported as the balance of gas price risk on a seasonal basis remains high, according to EBW. This would likely give traders a reason to buy the dips and avoid aggressive shorts.
Senior analyst Eli Rubin at EBW said: “If bullish catalysts can trigger upward momentum, substantial gains are possible later this fall.”