Natural gas trading outlook: futures advance on short-term warm weather, EIA inventory data in focus

Natural gas rose on Thursday and extended its weekly advance amid short-term weather forecasts for mostly warmer-than-normal weather across the US through the end of the week. However, projections government data later today will show another larger-than-average build in US natural gas inventories, as well as extended forecasts pointing to cooler weather in the northern US, limited gains.

On the New York Mercantile Exchange, natural gas futures for settlement in September were up 1.26% by 9:36 GMT to trade at $3.871 per million British thermal units. Prices ranged between days high and low of $3.872 and $3.829, respectively. The energy source lost 1.39% on Wednesday to settle at $3.823, but was up almost 2.5% on weekly basis following Thursdays advance.

Market players awaited the release of the Energy Information Administrations weekly US natural gas inventories data. According to a Bloomberg survey, EIA’s report will likely show a build of 82 billion cubic feet (bcf), well above the five-year average gain of 48 billion bcf. NatGasWeather.com analysts expect a jump of between 82 and 86 billion cubic feet. Next week’s inventory report is also projected to come in well bearish, albeit leaner than recent ones, with injections sharply exceeding average values.

Weather outlook

According to NatGasWeather.coms forecast for the August 21st – August 27th time span, the southern US will remain quite hot with highs well into the 90s extending as far north as the southern Plains and Tennessee Valley. The western parts of the country will have several weather systems track through with showers, thunderstorms, and cooler-than-usual temperatures. There will be several days of warm temperatures early next week over the Great Lakes where highs could establish at 90 degrees Fahrenheit for several days before dropping back to near or below normal.

The northern US will also see milder weather systems carrying heavy showers and thunderstorms. A much cooler system will push into the northern Rockies and Plains, bringing highs down to the 60s and 70s. Overall, nationwide cooling demand during the next seven days will be moderate compared to normal.

According to NatGasWeather.coms August 28th – September 3rd weather outlook, an expected Canadian weather system with showers and below-usual readings will enter the US and sweep across its northern areas. It will push moderately deep into the central US, lowering temperatures to comfortable levels. The first wave of cooler Canadian air has already tracked across the northern Rockies and Plains, and will stall there for several days.

Overall, the upcoming cool blast is playing out slightly less bearish than previously projected since the cooler air initially stalled over the northern Plains instead of the Midwest. The Midwest and Northeast will eventually see highs dropping to the 70s, but at a slower rate. How September will start is not clear enough yet. We can say with fair certainty that the entire next week will see cooler weather across the north-central US, while the South will most likely remain hot, accounting for the nations highest cooling demand.

Due to the current warm-up, leaner builds are expected to come in the next couple of weeks, but the following mild weather across many portions of the US will ensure more much-larger-than-average inventory injections, reaching above 100 billion cubic feet.

According to AccuWeather.com, readings in New York will peak at 79 degrees Fahrenheit on August 25th, 3 below normal, before rising to 82 degrees on August 29th. Chicago will see mostly seasonal weather through August 27th, with temperatures maxing out at 82 degrees on August 26th, 1 above the average, before dropping to 74 degrees on September 5th, 5 below normal.

On the West Coast, Los Angeles will reach 88 degrees on August 27th, 3 above usual, before easing down to 79-82 degrees between through September 10th. To the South, Houston will see highs of around 96 degrees between August 24th and August 27th, 4 above normal, followed by a moderate cooling to 86-88 degrees between August 31st and September 4th.

Technical support and resistance levels

According to Binary Tribune’s daily analysis, September natural gas futures’ central pivot point stands at $3.834. In case the contract penetrates the first resistance level at $3.877 per million British thermal units, it will encounter next resistance at $3.930. If breached, upside movement will probably attempt to advance to $3.973 per mBtu.

If the energy source drops below its first support level at $3.781 per mBtu, it will see support at $3.738. If the second key support zone is breached, the power-station fuel’s downward movement may extend to $3.685 per mBtu.