A milder weather forecast and a mixed outlook in terms of production and export demand helped send natural gas futures lower in early trading Monday.
The expiring October Nymex contract was off 10.9 cents to $2.030/MMBtu at around 8:50 a.m. ET. November futures were down 9.1 cents to $2.716.
Weather-driven demand expectations decreased over the weekend, driven by warmer changes after the current week that would trim heating degree days (HDD) over the northern part of the country, according to Bespoke Weather Services.
“We do still have a healthy cool shot this week, relative to time of year, but while there are some HDD in the north, we must also consider the total lack of demand in the South this week, as the cooler air” reduces cooling demand, Bespoke said.
September is on track to finish with the lowest gas-weighted degree day total of any September since 2009, according to the firm, which is also projecting that October’s degree day total will “wind up significantly less than the last couple of years, at the least.”
Options expiration likely played a role in the sell-off that occurred back on Friday, according to analysts at EBW Analytics Group.
“Prices could remain under pressure today, when October trading ends,” they said, pointing to the milder weather forecast and a mixed outlook in terms of shifts in production and liquefied natural gas (LNG) demand.
“While Cameron has started to receive trace amounts of natural gas, both Cameron and Cove Point are still shut down, feed gas flows at Sabine Pass have been reduced due to pipeline maintenance, and natural gas production has rebounded modestly,” the EBW analysts said. “By later this week, however, demand is likely to increase due to colder weather and increased LNG feed gas flows,” potentially pushing prices higher.
As October rolls off the board, the November contract faces downside risk, according to Bespoke.
“Once the smoke clears, with demand generally looking weak, and risk of cash also staying weak with storage still at record levels,” the November contract “faces downside price risks as it becomes the new prompt month,” Bespoke said. “…Fundamentally, the picture for winter still looks bullish, however, but we will soon have to consider weather as well, which may not be very helpful to bulls over the next several weeks.”
From a technical standpoint, bulls will need to push prices on the November contract through resistance levels at $2.928 and $3.002-3.033 in order to “keep the rise going,” according to ICAP Technical Analysis analyst Brian LaRose.
“Clear these obstacles and the door will be open for a rise to $3.106-3.181, even $3.300-3.365 from here,” LaRose said. “And if the bulls fail to clear resistance? Then they run the risk of allowing the November contract to revisit the $2.496-2.422 neighborhood…or worse.”
November crude oil futures were up 24 cents to $40.49/bbl at around 8:50 a.m. ET, while October RBOB gasoline was up about 1.2 cents to $1.2263/gal.
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