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November natural gas rally exhausted amid fundamental weakness

NYMEX November natural gas futures were lower Monday, Oct. 16, as the recent rally was exhausted by a lack of fundamental support. Trading in a range from $2.908/MMBtu to $2.977/MMBtu, the contract settled 5.4 cents lower on the session at $2.946/MMBtu.

Revised weather forecasts from the National Weather Service took out some upside support, as the above-average temperatures that were expected to blanket nearly the entire country through the end of October are now expected only through the six- to 10-day period to Oct. 25.

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The longer-range projection shows above-average temperatures in the eastern third of the U.S., across the coastal areas in the Gulf States and across the western third of the country. The central U.S. will see a mix of above-average and below-average temperatures.

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As forecast, the weather should help erase some of the late season cooling demand ahead of a significant ramp up in heating demand and allow for natural gas inventories to continue building at a relatively healthy pace.

The titular injection season comes to an end on Oct. 31, leaving just two more inventory report weeks to build the natural gas supply to its end-of-season total.

So far during the 2017 refill season, net injections into storage at 1,544 Bcf are 15% lower than the comparable five-year average increase of 1,817 Bcf.

If net injections continue to be 15% lower than the five-year average, then working gas stocks will reach 3,834 Bcf by the end of the refill season, the Energy Information Administration said. However, working gas stocks will total 3,842 Bcf if net injections into working gas match the five-year average for the remainder of the refill season.

Natural gas inventories built by an impressive 87 Bcf in the week to Oct. 6, bringing the total working gas inventory to 3,595 Bcf, or 153 Bcf below the year-ago level and 8 Bcf below the five-year average storage level of 3,603 Bcf.

Although trailing the five-year average, the EIA expects inventories to end the refill season near the five-year average.

Winter weather outlooks call for a season that is likely to be near the ten-year average and modestly colder than the two previous winter.

"For the moment market participants are starting to look at the potential for a near normal winter with the end of the injection season inventory level below last year as well as the five-year average," Energy Management Institute principal Dominick Chirichella said.

"However, there is still not a strong enough conviction to send the market consistently in either direction as the spot Nymex November contract remains in the wide, choppy trading range that has mostly been in play since the beginning of the summer," he said.

In day-ahead trade price support was higher in the Northeast as demand and congestion supported a gain of nearly $1.55 at Transco Zone 6 NY to an index at $2.85, while Tetco-M3 gained about $1.15 to an index near $1.70.

Elsewhere, markets were mixed by varied weather and demand. Benchmark Henry Hub trade was nearly 15 cents lower to an index near $2.85, Waha deals were nearly 1 cent lower to an index below $2.55, Chicago added nearly 5 cents to an index near $2.80, while SoCal Border and PG&E Gate each added value. SoCal Border traded nearly 30 cents higher to an index near $3.00, while PG&E Gate gained about 1 cent to an index near $3.20.

Market prices and included industry data are current as of the time of publication and are subject to change. For more detailed market data, including power, natural gas index prices, as well as forwards and futures, visit our Commodities Pages.