Natural gas trading outlook: futures steady above $4 ahead of the EIA report

Natural gas futures were higher during early trade in Europe today, after closing above $4 for the first time in more than a month yesterday. Investors eye the upcoming EIA inventories report, set to reveal a relatively smaller injection.

Front-month natural gas futures for delivery in October traded at $4.020 per million British thermal units (mBtu), up 0.42%, at 9:18 GMT on the NYMEX. Prices ranged from $3.995 to $4.020 per mBtu. The contract added 1.37% on Wednesday, reaching a six-week high of $4.032.

“Prices remain tricky short term as they remain range bound with many things to consider, such as a couple lighter builds and more comfortable temperatures,” analysts at NatGasWeather.com said in a note to clients today. “We expect the markets to have limited upside potential as the return of 100+ Bcf builds will be looming.”

Todays Energy Information Administration (EIA) report, which will cover the week through August 22, is expected to show ~73-78 Billion cubic feet (Bcf) of natural gas were added to US inventories, which would among the smaller builds this summer, though still quite bigger than average. Next week’s build is also expected to be leaner, as several days of warm temps over the northern US drive fairly strong cooling demand.

High temperatures in the summer generally prompt increased cooling demand, which in term bumps up overall natural gas consumption, as 30% of all US natgas is burned in power stations, generating electricity for air conditioners, among all other things.

Last week’s official US natgas storage report revealed 88 billion cubic feet (Bcf) were added to inventories in the week through August 15th. The build was larger than the expected 83 Bcf and was almost double the 5-year average gain for the week, while also marking the sixteenth straight week of higher-than-average injections.

US weather outlook

NatGasWeather.com projected easing temps over the southern and central US in the coming days, as the cool Canadian system that tracks through the Midwest and Northeast. The system will be off the mainland by next week, allowing for high pressure to again build up and bump readings up a notch. Overall cooling demand over the next seven days will be moderate.

“Cooler temperatures will sweep through the central US, including the southern Plains and northern Texas, over the coming days,” NatGasWeather.com said. “The northern US will be quite comfortable into the first few days of September.”

New York will finally breath easily today, as temps lower down to seasonal, ranging 62-82 degrees Fahrenheit, according to AccuWeather.com. Temps will further drop tomorrow, before some more heat on Sunday, when readings will again push into the high 80s. Chicago is set for another moody day, with mostly clouds and some rain, temps between 68 and 72 degrees, several below average. Starting tomorrow temperatures will climb to seasonal as more clouds, rains and occasional storms keep any heat in check.

Down South, Houston will see seasonal temps today, between 77 and 92, with mostly clouds and a thunderstorm. The weather will be largely the same through to Sunday, when the clouds will break, though temps will remain seasonal at most, with more storms due. Over on the West Coast, Los Angeles readings are projected at several above average, ranging 68-92. Temps will be slowly lowering over the next few days, though they will remain above average through to next week.

Overall, next week will set off with relatively high temps, though there will be a significant cooling across the whole US later on. Cooling demand will be moderate-to-low.

Technical support and resistance levels

According to Binary Tribune’s daily analysis, October natural gas futures’ central pivot point stands at $3.989. In case the contract penetrates the first resistance level at $4.046 per million British thermal units, it will encounter next resistance at $4.089. If breached, upside movement will probably attempt to advance to $4.146 per mBtu.

If the energy source drops below its first support level at $3.946 per mBtu, it will next see support at $3.889. If the second key support zone is breached, the power-station fuel’s downward movement may extend to $3.846 per mBtu.