By: Heather Wine, Senior Risk Manager - Energy
After trading in both positive and negative territory, spot month gas prices ultimately closed higher on Tuesday. Monday’s sharp rally left the market in overbought territory, prompting early session profit taking while a dip in production and colder weather on the horizon provided underlying support. Nov futures settled 7.7 cents higher at $3.474.
Today’s 6-10 day outlook is cooler along the East Coast while the 11-15 day outlook continues to favor above normal temps across the West with below normal readings in the SE. Temps will average near normal from the Midwest to the East.
This week’s storage report is expected to show a build of 81 BCF for the week ended Oct 17. This is slightly higher than both the 5 yr avg build of 77 BCF and last year’s build of 79 BCF. If correct, stocks would rise to 3.802 TCF.
The supply/demand balance was little changed last week as a drop in power burn was offset by a rise in both heating and feedgas demand.
The injection for the week in progress could further widen the surplus with estimates currently suggesting a build of 80 BCF, well above the 5 yr avg comparison of 67 BCF.
Production was estimated at 104.8 BCF/day yesterday with concurrent maintenance activity leading to regional declines in the Rockies and East. Levels were adjusted higher, lifting output to 105.9 BCF/day. Estimates this morning put production at 107 BCF/day, bringing the month to date average to 106.4 BCF/day, up 4.2 BCF/day from last year.
There is growing speculation that E & P companies may scale back drilling activity next year in response to softer oil prices, which could limit any increases in associated gas production.
Source: NOAALNG feedgas demand is holding steady this morning at 16.9 BCF/day.
The November 25 natural gas contract continued higher on Tuesday following Monday’s 13% gain adding an additional .077 (2.3%) to close the day at 3.474.
Overnight buying has rallied the November contract up to a 3.572 high, nearly the same level the contract topped out in early-October at 3.585.
If the November contract doesn’t push above 3.585 resistance, a bearish double top reversal may have formed.
There is a very good chance a pre-winter low is in place but prices could weaken near term in a retest of downside support given recent strength in the market.
3.290-3.300 is the first area of support for the November contract followed by the 10 day moving average at 3.185.
The downside gap created on Monday’s open is between 3.025-3.130 and will remain a bearish technical factor until closed.
If 3.585 resistance is broken, 3.630 and 3.750 will become the next upside objectives.
Moving Average Alignment – Neutral-Bullish
Long Term Trend Following Index – Bullish
Short Term Trend Follow Following Index - Bullish
Relative Strength Index - 63.90
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