The spot month nat gas contract traded both sides of unchanged yesterday as the market priced in low injection estimates and colder air next week against expectations for major demand destruction from Hurricane Milton. Milton returned to Cat 5 strength late yesterday with its forecast track now showing landfall late tonight along the central Gulf Coast of Florida. Milton is expected to cause catastrophic damage as it travels across the Florida Peninsula tomorrow. Nov futures settled 1.3 cents lower at $2.733.
Energy markets are anticipating major demand destruction as Milton is expected to bring extended power outages and cooler air. Gas fired power demand is estimated to bottom out around 9 BCF/day down from Tuesday’s estimate of 10.7 BCF/day.
Gas and oil activity in the GOM has been limited thus far with Milton likely to stay away from US LNG facilities along the Gulf Coast.
Heating demand however is expected to pick up over the next week to 10 days as a cold front is forecast to push through the East next week while the West remains warmer than normal. Colder Canadian air will push into the Central and Eastern US, bringing widespread below normal temperatures with it. The coolest conditions will be seen across the Midwest and South mid period. Temps will rebound back to above normal in the north central US and eastern US during the 11-15 day period.
A further decline in the storage surplus is expected in tomorrow’s report with the EIA is expected to report a lower than normal build of 72 BCF. This compares to last year’s build of 85 BCF and the 5 yr avg build of 96 BCF. If correct, stocks would rise to 3.619 TCF while the 5 yr avg surplus would narrow to 166 BCF.
Prices are trading lower as the market braces for bearish impacts from Hurricane Milton. Milton is expected to be one of the most destructive storms to ever hit the west central Florida coast and could result in a 1 to 2 BCF/day loss in nat gas demand.
Another day of lower trade as the November contract settled at $2.733, down .013 cents. Tuesday’s trade attempted to fill the gap between $2.690 - $2.720 that was established at the end of September. The inability of the market to settle below this level points to a market that is finding near-term support. At the same time, if the market does not get a higher close today or tomorrow, the bullish bias will become less likely.
The 40-day moving average on the November contract sits at $2.680 while the 10-day moving average at $2.840 has become strong upside resistance. The 62% retracement of the recent November move is also at $2.700. If the market fails to hold these levels, the next target is the $2.500 area.
The November-December natural gas future’s spread is currently at a negative .45 cents after just testing the 200-day moving average support level of negative .50 cents, a bullish indicator.
Moving Average Alignment – Neutral
Long Term Trend Following Index – Bullish
Short Term Trend Follow Following Index - Bullish
Relative Strength Index - 49.73
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