It has been quite interesting to watch price action in the natural gas market over the past 3 sessions.
Natural gas prices have been range bound for the past 11 weeks as larger than normal storage injections since mid-April continue to pressure prices lower.
On the other side, the seasonal price trend for the market to bottom during the fall months and the possibility for an early start to winter with lower than normal stockpiles of gas in storage have been supportive factors for natural gas.
The new spot November 14 natural gas contract last Thursday spiked down to a 3.874 low immediately following release of the weekly EIA storage report at 9:30 am central. The storage number came in at a surprisingly large 97 Bcf (billion cubic feet) in comparison to pre-report analysts' guesstimates of between 81-96 Bcf , an 82 injection in 2013 and a 5-year average injection of 79 Bcf.
Last week's injection was large not only in terms pre-report expectations but also in comparison to what analysts had expected ahead of the report.
The minute after the EIA report was released and the market sold off, it soon began to move back higher. By Thursday's close, the November contract had gained .049 or 1.3%. And this came on the day a bearish injection number was reported.
When a market doesn't react as expected following a market moving report, the trend may be reversing.
Natural gas prices held firm during Friday's trade overcoming early selling pressure to close the day up .015. For the week, the November contract gained just over 3%.
In today's trade, the November contract moved sharply higher as buyers must have been encouraged by last week's strong close. News reports suggested buying was related to worries about an early start to winter heating demand. But today's latest 6-10 and 8-14 day forecast by the National Weather Service does not confirm this outlook.
Nevertheless, the market may be pricing in the possibility for a colder winter.
As an aside to the possibility for a colder winter was a trip I took this weekend to the Northeastern Georgia mountains for a hiking and camping trip. A local farmer and friend of mine told me the hornets are building their winter nests underground this year. Their nests are typically in the trees and other hard to reach places. But this year, the nests are underground. My friend said in his 50+ years he doesn't remember seeing this and thinks this is going to be a winter for the record books. At least for Northeast Georgia.
The November contract today topped out at a 4.162 high, one tick below the previous high set on August 28th.
The inability to rally above the August high today could be the start of a turn back lower. With weather forecasts largely benign and weekly storage injections large, there isn't much besides the possibility for an early start to winter to get the market moving higher.
However, recent strength over the past 3 days following Thursday's unexpectedly large storage injection could be a turning point for the market. A breakout this week above recent highs could be the start of a seasonal rally back higher.
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