Natural gas trading outlook: futures extend losses on mild weather outlook

Natural gas fell to a three-week low on Monday, extending its previous weeks decline, as weather forecasts called for cooler-than-seasonal weather across most of the US through the end of August, despite a minor warm-up in the central and northern US which is expected to take place this week.

On the New York Mercantile Exchange, natural gas futures for settlement in September slid 0.48% to $3.758 per million British thermal units by 07:54 GMT. Prices fell to a three-week low of $3.727 earlier in the trading session, while days high stood at $3.759. The energy source lost 3.33% on Friday to close the week at $3.776, marking its first weekly decline since July. Prices have lost around 20% since mid-June.

Natural gas extended its downward momentum as weather forecasting agencies predicted mostly seasonal and below-seasonal temperatures across many of the high-consuming states, paving the way for a yet-another larger-than-average weekly build in nationwide gas inventories both this week and the next one.

According to NatGasWeather.coms weather report for the August 18th – 22nd time span, many small weather systems will track across the US, bringing showers and thunderstorms, but they will be milder and allow temperatures in the northern US to gradually warm to the lowers 80s. The southern parts of the country will remain warm and will even heat up by several degrees. To the West, however, several weather systems with showers and thunderstorm will push readings down below the average, including the high-consuming state of California. Overall, despite the minor rise in temperatures in some parts of the US, the general trend will be neutral to slightly-colder, allowing for larger-than-average inventory builds. Cooling demand will be moderate compared to normal this week.

As for the time period between August 23rd and August 29th, NatGasWeather.com expects a new strong Canadian weather system to penetrate the ridge and bring rain, thunderstorms and below-seasonal readings to the Pacific Northwest and extend further south to the central US late this weekend. This would be considered a slightly bearish trend as cooling demand would again drop to lower than usual over many highly populated states for at least 2-4 days once the cold front passes through. The system also bears a chance to touch the southern states and lower readings to the upper 80s across the Southern Plains and Southeast instead of the seasonal 90s. As the weather system dissipates, a following warm-up is expected, but it would have already ensured another much larger-than-average weekly build in US inventories, due to be reported on August 28th.

Brian Bradshaw, a portfolio manager who oversees energy-derivatives trading at $1 billion fund firm BP Capital in Dallas, said for the Wall Street Journal: “We think youre going to have plenty of gas for the winter unless youve got some kind of extreme weather event, which, how likely is that?. You have to say its a low probability.”

Temperatures

According to AccuWeather.com, the highs in New York between August 19th and August 25th will hold in the range of 76 to 81 degrees Fahrenheit, compared to the average of 82, before jumping to as much as 89 degrees on August 29th. In Chicago, readings will peak at 78 degrees Fahrenheit on August 20th, 4 below usual, and will drop further to as much as 69 degrees on August 25th before recovering to 79 degrees on August 27th. However, temperatures are projected to remain well below normal up to the second week of September.

To the South, Houston will see temperatures maxing out at 97 degrees on August 20th, 4 above normal, before easing off to between 90 and 92 degrees from August 25th to August 30th. On the West Coast, the high in Los Angeles on August 22nd will be 87 degrees, compared to the average of 85, and temperatures will hover near seasonal levels through August 28th after which they will drop to 3-6 degrees below normal for as much as 10 days.

Technical view

According to Binary Tribune’s daily analysis, September natural gas futures central pivot point on the NYMEX stands at $3.815. In case the contract penetrates the first resistance level at $3.867 per million British thermal units, it will encounter next resistance at $3.958. If breached, upside movement will probably attempt to advance to $4.010 per mBtu.

If the energy source drops below its first support level at $3.724 per mBtu, it will see support at $3.672. If the second key support zone is breached, the power-station fuel’s downward movement may extend to $3.581 per mBtu.