A cooler shift in the weather outlook overnight, coupled with indications of a tightening supply/demand as winter approaches, had natural gas futures charging higher in early trading Wednesday. The November Nymex contract was up 11.5 cents to $3.028/MMBtu at around 8:40 a.m. ET.
NatGasWeather attributed the gains early Wednesday to a combination of a strengthening outlook for liquefied natural gas (LNG) exports and colder trends in the overnight weather data.
Both the European and American models added to projected heating degree day totals for the period starting Sunday and continuing through Nov. 1; this comes as the background state looks “increasingly bullish” amid a tightening supply/demand balance, the forecaster said.
“The background state will be even more impressive once current surpluses versus the five-year average of 353 Bcf are whittled down, which will gradually occur, as we expect the next three builds to print smaller than normal due to the tighter balance and bouts of early season cold,” NatGasWeather said. “…Much of the data still favors milder conditions returning the first week of November due to only modest cold shots into the northern U.S. and with highs of 60s to 80s elsewhere, although there are ways colder trends show up quickly in time.”
Looking ahead to Thursday’s Energy Information Administration (EIA) storage report, Energy Aspects issued a preliminary estimate for a 40 Bcf build for the week ending Oct. 16. Outages in the Gulf of Mexico early in the report week led the firm to model a 1.4 Bcf/d week/week decline in production, with U.S. liquefaction demand down an estimated 0.6 Bcf/d week/week for the period.
“U.S. gas markets are drifting toward the supply-constrained balances that we anticipate will define the coming winter and 2021,” Energy Aspects said in a recent note to clients. “…Our revised balances indicate prices will need to move higher to coax more production” out of the Appalachian Basin and the Haynesville Shale “moving forward. The higher dry gas output will help balance the market and mean total U.S. production will come in at a flat year/year average in 2021.”
Meanwhile, November prices were hovering around a key technical target in early trading Wednesday.
ICAP Technical Analysis analyst Brian LaRose noted that November natural gas prices closed out Tuesday’s session above a support band at $2.880-2.904-2.909.
“That means $3.002 is the only obstacle standing in the way of fresh highs,” LaRose said, adding that “a breach of this level” should be the “immediate priority” for bulls. Should bulls break through resistance “the door will be open for a push to $3.181-3.192, $3.242-3.330, even $3.552-3.575-3.593. Fail to clear $3.002 and the bears still have a chance to send natural gas plunging back to $2.595.”
December crude oil futures were down 55 cents to $41.15/bbl at around 8:40 a.m. ET, while November RBOB gasoline was off about 1.3 cents to $1.1753/gal.
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