With seasonal demand expected to pick-up in late October/early November, now is the perfect time to take a look at the natural gas futures market.
Weekly November natural gas futures tried to breakout to the upside last week, but failed to attract enough buying interest to complete the move. The strength early in the week was created by a forecast for below-normal temperatures across the high demand areas of the U.S. The rally failed and the market broke when the forecast was changed to normal temperatures.
This type of price action is typical for October because temperatures and weather conditions often shift from bullish to bearish during this time period. Since it is fall in the U.S., this type of temperature fluctuation should be expected because the season is usually neither too hot nor too cold.
Traders refer to this time period and price action as the “shoulder season”. This is a seasonal time period when mild temperatures spread across the main gas consuming regions, holding demand steady. It also represents a time when producers replenish supply ahead of the winter season. If producers fall short of expectations and winter conditions appear earlier than normal, the market starts to rally.
Price consolidation, or sideways action typically takes place during the “shoulder season” because speculators support the market on concerns that supplies may not be adequate enough for the upcoming heating season.