Investing.com | Sep 14, 2018 12:02AM ET
Hurricane Florence may not just bring a torrent of rain and flooding to the Carolinas. It could also ruin efforts by natural gas bulls to keep the market above the key $2.80 support as demand for late summer air-conditioning wanes.
From agricultural markets to energy, investors in commodities have nervously eyed every development in the current Atlantic hurricane season’s most menacing storm. Florence has been downgraded to a Category 2 Hurricane but remains a huge, life-threatening storm, almost 400 miles in diameter and extending about 80 miles from its center.
Rains Could Offset Late Summer Heat
On the natural gas front, rains brought by the storm could offset late summer heat in areas it passes through, diminishing the need for air-conditioning and depriving utilities of some of the demand they have enjoyed lately for their power. “The more likely impacts of Florence on natural gas will be lost power generation in the immediately affected area and heavy rainfall over a wider region that limits daytime temperatures and takes a bite out of demand into next week,” Dan Myers, natural gas analyst for Gelber & Associates in Houston, said in a report on Thursday.
Going forward, sentiment could turn bearish without fresh drivers for power demand.
“We may be looking to recommend some kind of short position in this market in the weeks or months ahead,” said Shawn Hackett of Hackett Financial Advisors in Boca Raton, Florida, citing mild weather as the key factor. On the New York Mercantile Exchange on Thursday, natural gas for October delivery settled at $2.817 per million metric British thermal units (mmBtu), down by a modest 0.4 percent.
Investing.com's technical charts for natural gas indicate sharper losses in coming sessions. The daily technical outlook calls for a “Strong Sell,” with Fibonacci patterns signaling the strongest Level 3 support at $2.788.
If the market ratchets down to that level, it will basically crack the $2.80 support, which was prevalent from late-May to the end of June and again from early-to-late August. Those were periods when demand for air-conditioning spiked from sweltering heat. They were also times when utilities injected lower-than-usual volumes of gas into storage for summer heating, after meeting immediate power generation needs.
In the latest week to September 7, storage of natural gas rose by 69 billion cubic feet (bcf), versus analysts’ forecasts for an injection of 68 bcf. In the previous week, the build was 63 bcf. While weekly stock injections were still below the five-year average of 74 bcf, analysts noted that the market was getting into the “shoulder season” between fall and winter, when neither air conditioning nor heating may be required.
“When demand eases in the coming weeks, more than one triple-digit injection is not out of the question given recent production levels,” Myers said. Natural gas output is expected to reach an all-time high of 81.34 bcf per day (bcfd) in 2018 versus 73.57 bcfd in 2017, the US Energy Information Administration said in July. He added:
“The market will be forced to factor this (record production) in, along with the more bearish effects of Florence, that may send a blow to prices in the next few days.”
Some say prices may not crumble as easily as thought, especially if weather forecasts change to show a frigid winter ahead. The alternative might lead to “a wide, choppy trading range for the foreseeable future – or until there is a reason to move the market strongly in either direction,” said Dominick Chirichella, analyst at the DTN-owned Energy Management Institute in New York.
Written By: Investing.com
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.