Natural Gas Volatility Possible as Winter Nears
Sep 29, 2023
Prices are pulling back today, but U.S. natural gas futures are on track to record the best weekly percentage gain since June after hitting a 2023 low earlier this week. The November contract (/NGX3) started trading yesterday as the prompt-month contract, which is trading down 1.20% to 2.910 per million British thermal units (mmBtu).
The U.S. Energy Information Administration (EIA) reported yesterday that the natural gas inventory rose by 90 billion cubic feet (Bcf) for the week ending Sept. 22, putting total working gas in storage at 3,359 Bcf. Compared with the same time last year, stocks are 397 Bcf higher—a strong bearish factor at this time of the year.
The U.S. weather outlook via the National Weather Service’s 6-10 day temperature outlook calls for above-average temps across the eastern half of the country, particularly the Northeast. That would typically be a tailwind for prices by raising demand, but at this time of the year the weather is much milder so it shouldn’t cause a big spike in energy demand even with above-average seasonal mercury readings.
As the U.S. enters its seasonal withdrawal period when stockpiles typically fall as heating demand rises, the above-average inventory levels should keep prices from making dramatic moves higher. With winter approaching, traders should remain cautious if weather models shift to colder temperatures, which would bolster the demand outlook.
While the risks from Australia's LNG supply have been mitigated, factors abroad, including a precarious situation in Europe amid the Ukrainian war, leaves the chance for unexpected volatility on the U.S. benchmark because a major supply shock would send European prices higher and compete for U.S. liquefied natural gas cargoes.
Norway has replaced much of Europe’s lost gas from Russia, and the bloc is on much better ground going into this winter compared with last year. According to data from Gas Infrastructure Europe (GIE), total inventory is 95.03% full as of Sept. 26. If problems arise in Norway’s production, such as unscheduled maintenance, it could spark a new round of volatility.
Natural gas prices are attempting to clear the 23.6% Fibonacci retracement level, measured by the August high to this week’s low. While the MACD is showing a bullish move above its signal line and oriented higher, the downtrend remains in effect. If bulls manage to clear the 23.6% fib, it may help to establish a floor of support into next week.
Thomas Westwater, a tastylive financial writer and analyst, has eight years of markets and trading experience. @fxwestwater
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