Looking to the Futures

The lower 48 have seen major fluctuations in temperature recently as the final month of the year approaches. The NOAA (National Oceanic and Atmospheric Administration) releases seasonal outlooks throughout the year based on the current weather patterns and trends. They have not revised outlook for November, December, and January, with the expectation the temperatures in the US will be higher than normal. Going into the new year, NOAA anticipates temperatures to continue to drop as winter continues to set in. 

With the most recent changes in temperatures, US residents have increased their electrical usage in-line with the temperature fluctuations. As reported by Rich Asplund on barchart.com from the Edison Electric Institute, weekly electricity output rose 3.19% y/y, and US electricity output in the 52-week period rose 1.6% y/y for the week ending November 9^th. 

European natural gas inventories are on track to take on winter as they were ahead their scheduled inventory needs in September. On August 21^st, the European Commission on energy announced they had reached their target to fill their gas storage facilities to 90% capacity. They had set this goal for November 1^st, and they anticipate their inventories would be able to support one third of the European Union’s (EU) energy needs for winter. Milder weather was reported as a leading contributor to the buildup.

Prior to the war in Ukraine, Europe imported roughly 40% of its natural gas from Russia. Since then, this percentage has dropped to 8% as the EU has been diversifying its natural gas suppliers. From 2023’s import statistics, the EU imports 30% comes from Norway, 19.4% from the United States, and 14.1% from North Africa. As far as US exports are concerned the EU is the United States biggest buyer accounting for 49% of all natural gas shipments.

This could be of concern to the incoming US administration as the implementation of tariffs could have unintended consequences to natural gas exports. Its easier for natural gas exporters to move inventory across the Atlantic as all US gas export terminals are on the East Coast or in the Gulf of Mexico. This means if Europe decides to decrease its imports from the US, US sellers would need to find buyers elsewhere such as Asia. This would increase shipping time and fees. 

 The Energy Information Administration (EIA) released a bearish report for natural gas inventories last week. For the week ending November 8^th, inventories rose by 42 bcf, which was above expectation. This rise is above the 5-year average build for this time of year, with current inventories being 3.7% above last year’s inventory. 

December natural gas, /NGZ24, settled at 2.998 MMBtu, up 0.025 from previous settlement. 

On the continuation daily natural gas chart, the price action is above the 50- and 200-day simple moving averages which would be a bullish action for the price of natural gas. However, when viewing the December daily chart another story is written out. The price action of /NGZ24 is below the 50- and 200-day SMA with the 50-day SMA appearing to be a resistance area. For /NGZ24, the 50-day SMA is at 2.999 and the 200-day SMA is at 3.323. 

The 14-day RSI on the /NGZ24 daily chart is indicating a bullish move sitting at 54.8643% and trending up. RSI appears to be in junction to the price action since it bounced from the 30% oversold threshold on November 1^st.

The directional movement index is indicating a weakening overall trend with a potential strengthening bullish trend. The ADX (white, 23.23) is pointing lower indicating a weaking overall trend with the previous trend being bearish. The negative DI (red, 18.95) is moving lower and currently below the positive DI. The positive DI (green, 22.08) is above the negative DI and moving higher. As ADX moves lower it is being weakened by the weakening negative DI which was previously the stronger trend. As the positive DI continues to move higher it will eventually turn ADX to move higher as the trend strengthens. 

Reading the chart, /NGZ24 appears to have created an inverse head and shoulders pattern with the 50-day SMA being the neckline. This is a bullish reversal pattern that could push natural gas higher. However, there is no guarantee to this chart pattern will fulfil its indicated behavior. 

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