Natural gas futures trading outlook: prices hit 8-month low as mild weather persists

Natural gas hovered near the lowest level in more than eight months as weather forecasts continued to call for below-seasonal readings across most of the high-consumption US areas, paving the way for a yet another larger-than-average natural gas inventories injection.

On the New York Mercantile Exchange, natural gas for settlement in September slid by 0.16% to $3.775 per million British thermal units at by 9:50 GMT. Prices fell to an eight-month low of $3.728 earlier in the day, while days high stood at $3.782. The energy source lost 1.72% on Friday and closed the week at $3.781, 4.3% lower.

The power-station fuel extended its decline as weather forecasts continued to point to cooler-than-normal weather across most of the US. According to NatGasWeather.com, the next in a series of Canadian weather systems will push deep into the southern US states over the next few days, bringing showers, thunderstorms and below-average temperatures. Many regions will enjoy mild weather with much lower-than-usual cooling demand, which is expected to allow for a yet another larger-than-average build in US natural gas inventories. The western and southernmost areas of the United States will remain hot with temperatures peaking between 90 and 100 degrees Fahrenheit.

In the 8-14 day time span, NatGasWeather.com expects below-average readings over the eastern and northern US for the first days of the period. A gradual warm-up is projected to follow, pushing readings up to near seasonal, but conditions are not expected to become hot, thus cooling demand should be moderate at most.

Inventories levels

Last Thursday, the Energy Information Administration reported that US natural gas inventories rose by 90 billion cubic feet in the week through July 18th, exceeding the five-year average gain by 44 bcf. This was the fourteenth consecutive above-average build. Stocks were 20.2% below last year’s reading for the respective week. Natural-gas market analysts at NatGasWeather.com expect this weeks EIA data to show a build near or little over 90 billion cubic feet, again well above the five-year average.

Data by the US Commodity Futures Trading Commission revealed that hedge fund managers trimmed bullish bets on natural gas by 11% during the week ended July 22nd.

The EIA had predicted that marketed gas production will jump by 4.1% in 2014 to 73.08 bcf per day, hitting an all-time high for a fourth consecutive year. At the same time, according to the Edison Electric Institute, output from electricity generators, the fuels biggest consumer, declined by 11% in the week ended July 19th from a year earlier. This was the lowest for this time of the year since 2001.

Breanne Dougherty, a natural gas analyst at Societe General SA, said for Bloomberg: “The move down in prices this early in the summer is surprising. The power generation load makes and breaks summers and it’s extremely sensitive to weather.”

According to AccuWeather.com, the high in New York on July 29th will be 78 degrees Fahrenheit, 6 degrees below average. Readings are expected to remain below seasonal through August 5th, when a spike to 90 degrees is expected, exceeding usual levels by 6 degrees. In Chicago, temperatures are projected to peak at 77 degrees on July 30th, 7 below normal, and should remain beneath the average throughout the first half of August.

To the South, Houston will see above-average readings tomorrow, with highs in the upper 90s. However, the period between August 1st and August 11th should be dominated by below-average readings, with highs peaking at 85 degrees on August 9th, 8 below usual. On the West Coast, the next couple of weeks will enjoy sunny weather with temperatures ranging from little below to little over seasonal. The high in Los Angeles on August 3rd will be 86 degrees Fahrenheit, 2 above the average, before dropping to 80 degrees on August 7th. A following warm-up is expected to take part on August 12th, pushing highs to 4-5 degrees above normal.

Technical view

According to Binary Tribune’s daily analysis for Monday, in case natural gas for settlement in August penetrates the first resistance level at $3.841 per million British thermal units, it will encounter next resistance at $3.900. If breached, upside movement will probably attempt to advance to $3.939 per mBtu.

If the energy source drops below its first resistance level at $3.743 per mBtu, it will see support at $3.704. If the second key support zone is breached, the power-station fuel’s downward movement may extend to $3.645 per mBtu.