The natural gas market in currently in a 9th week of sideways trade as it attempts to form a post-summer low.
The spot October 14 contract has been trapped in range between 3.740-3.800 support and the 4.000-4.100 area as resistance.
With gas in storage reaching an 11-year low of 822 Bcf (billion cubic feet) the last week of March 2014, the primary concern was refilling storage to adequate levels ahead of the upcoming winter 14-15.
Storage injections since the first week of April have been record high totaling 1,979 Bcf as of week ended 09-15. The injections in 2014 are 529 Bcf or 37% higher than the 5-year average.
But even with the record high injections, storage at the end of October when the injection season officially ends will likely fall 400-500 Bcf short of the past two years when storage reached all-time highs.
Analysts' estimates for storage at the end of the injection season have mostly fallen between 3,400-3,500 Bcf. In order to reach the middle of this range (3,450 Bcf) over the next 8 weeks, an average of 81 Bcf will need to be injected weekly. Over the past 5 years, the average injection during a similar time period has been 71 Bcf.
Storage injections will need to remain historically high over the next 8 weeks to meet analysts' expectations. Failure to do so should be a bullish factor for the market.
Recent weather has been colder than normal in the upper U.S. with snowfall in some areas over the past weekend. An early start to the winter heating season with lower than normal storage would be another bullish factor for the market.
Thursday's storage injection estimates are fairly wide ranging between 87-101 Bcf. A lower than expected number could be the catalyst to break the market higher. Weather forecasts have also turned more bullish with the latest 6-10 and 8-14 NWS forecast putting in more below-normal temperatures.
From a technical perspective, a breakout above 4.100-4.150 by the spot contract, currently October 14, would likely signal a seasonal low has been set.
From a seasonal trend perspective, August and September are the months when the second and final seasonal low for the year are typically so the timing is right for a market low to be near.
There could, however, be one more push lower if weather remains mild and injections large. If this does occur, it should be fairly short-lived to be followed by a seasonal rally back higher at least into the early months of 2015.
Carl Neill
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