Natural gas trading outlook: futures headed for big weekly gain on US weather, inventories

Natural gas futures continued climbing during early trade in Europe today, extending this weeks rally to more than 4%. The US posted a smaller than expected build for natgas inventories yesterday, further supporting the blue fuel after high temperatures over much of the US had boosted natural gas earlier.

Front-month natural gas futures for delivery in October traded at $4.064 per million British thermal units (mBtu), up 0.49%, at 9:15 GMT on the NYMEX. Prices ranged from $4.042 to $4.065 per mBtu. The contract added 1.02% on Thursday, reaching a six-week high of $4.101, and is headed for a ~4.3% weekly gain.

“We are getting a little bit of a weather spike for support,” Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York, said for Bloomberg. “We’ve got a multiweek high; this is progress as far as the bulls are concerned.”

The US Energy Information Administration (EIA) report from Thursday, which covers the week through August 22, logged an injection of 75 billion cubic feet, the smallest weekly build since early May, though continuing the larger-than-average builds series for the nineteenth week. Storage levels were reported at 2 630 trillion cubic feet, just 16.5% short of the 5-year average, and are headed for a near-complete replenishment ahead of winter heating season.

“It will be nothing but bigger builds from here on out,” analysts at NatGasWeather.com wrote in a note to clients today. “We expect much bigger builds to start lining up as they again approach 90-100 Bcf several weeks out.”

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.

US weather outlook

NatGasWeather.com projected easing temps over the southern and central US in the next several days, as the cool Canadian system that tracks through the Midwest and Northeast. Meanwhile, the East Coast is set for several degrees of warming, before the Canadian system reaches the area to lower readings. Following the system, more high pressure will be building up, allowing for higher temps. Overall cooling demand over the next seven days will be moderate.

“There is not going to be a real hot pattern setting up over the US that would put fear into the markets weather wise,” the group said. “If anything, it’s likely much cooler temperatures will push into many high population cooling demand regions during the second week of September.”

New York is set for comfortable Friday, with temperatures a few degrees below average at 65-78 degrees Fahrenheit. It will be slightly warmer tomorrow, before readings climb to above-seasonal for Sunday and into next week. Chicago will see normal temperatures today and through to next week, ranging 70-80 degrees. Storms and clouds will keep any rise in check up to next weekend, when readings might climb.

Down South, Houston is set for seasonal temps at 77-90 through to next week, as plenty storms are bound for the area, paring any heat. Over on the West Coast, Los Angeles will be warmer than usual, with temperatures between 66 and 90 degrees, a few above average. It will be closer to seasonal over the weekend, before temps drop a few into 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 $4.039. In case the contract penetrates the first resistance level at $4.106 per million British thermal units, it will encounter next resistance at $4.167. If breached, upside movement will probably attempt to advance to $4.234 per mBtu.

If the energy source drops below its first support level at $3.978 per mBtu, it will next see support at $3.911. If the second key support zone is breached, the power-station fuel’s downward movement may extend to $3.850 per mBtu.