Natural gas futures held onto most of their recent gains in early trading Friday as analysts highlighted tight balances, warm September temperatures and global price trends as drivers of bullish sentiment. The October Nymex contract was down 2.2 cents to $5.009/MMBtu at around 8:55 a.m. ET.
The U.S. Energy Information Administration (EIA) on Thursday reported a 52 Bcf injection into storage during the week ended Sept. 3, bearish versus surveys that had pointed to a build in the upper 30s or low 40s Bcf.
Total working gas in U.S. storage stood at 2,923 Bcf as of Sept. 3, 16.8% below year-ago levels and 7.4% below the five-year average, according to EIA.
Despite eclipsing expectations the print still came in tight versus historical norms, analysts at Tudor, Pickering, Holt & Co. (TPH) noted.
The tightness results from a “combination of weak supply, owing primarily to extended Gulf of Mexico outages, and continued robust power generation demand as we’ve shifted into shoulder season,” the TPH analysts said. “…Despite the bearish print versus expectations, continued tight balances and extended warm weather forecasts through much of September pushed the October contract north of $5.”
To help explain how prices have rallied above the $5 mark, NatGasWeather pointed to a combination of both tight balances on post-Hurricane Ida supply disruptions and strength in global gas prices.
Still, “yesterday’s EIA report suggested the balance might not be quite as tight compared to previous weeks,” NatGasWeather said.
As for the overnight forecast trends, changes were mixed, according to the firm.
“National demand will increase late this weekend into the start of next week as above normal temperatures rule most of the U.S., including highs of upper 80s to lower 90s over the East,” the firm said. “It’s mid-next week and beyond when national demand again becomes light as above normal temperatures rule the Midwest and Northeast with perfect highs of 70s to lower 80s, while very warm across the southern U.S. but with decreasing coverage of highs reaching the 90s and 100s.”
NatGasWeather said it’s looking for the next three EIA-reported injections to land near historical norms, which would keep stockpiles on track to exit the injection season near 3.5 Tcf.
From a technical standpoint, ICAP Technical Analysis analyst Brian LaRose laid out two scenarios for what happens next for the October contract.
“Bearish case, natural gas rolls over from the $4.990-5.007-5.116 vicinity,” LaRose said. “Bullish case, a series of higher highs is still on tap.” Bears would only need to “crack $4.691-4.664” in order to suggest “trouble could be brewing.” However, it would leave open the possibility for “higher prices if the bears cannot make that happen.”
LaRose pegged resistance targets between $5.461 and $5.600 as the next upside objective should bears fail to send prices lower.
October crude oil futures were up $1.30 to $69.44/bbl at around 8:55 a.m. ET.