Natural gas trading outlook: futures inch higher on colder weather outlook

Natural gas performed a slight rebound from a 27-month low on Friday amid weather forecasts pointing to a colder start to January but gains were capped by US inventories continuously narrowing down a deficit to the five-year average.

On the New York Mercantile Exchange, natural gas for delivery in January traded 0.50% higher at $3.045 per million British thermal units at 8:28 GMT, having shifted in a daily range of $3.098-$3.042. The power-station fuel plunged 4.45% on Wednesday to $3.030 per mBtu, having earlier fallen to $3.003, with both prices being the lowest since September 26, 2012.

The Energy Information Administration reported on Wednesday, one day earlier due to the holidays, that US natural gas stockpiles fell by 49 billion cubic feet in the week ended December 19th, falling well behind expectations for a withdrawal of 57-63 bcf. This also sharply differed from the year-ago drop of 193 bcf and the five-year average draw of 138 bcf, allowing to further gain on deficits.

Total gas held in US storage stood at 3.246 trillion cubic feet, narrowing the gap to the 3.415-trillion average to 4.9% from 7.3% a week earlier. Compared to a year ago, supplies expanded their surplus to 4.8% from 0.2% during the preceding week.

Moreover, the energy source is expected to remain under pressure as mild conditions during the current week will lead to a much thinner-than-normal draw next week, possibly allowing for inventories to get within around 100 bcf below the five-year average.

Support, however, was drawn by weather forecasts calling for colder weather across large regions of the US in early-January.

NatGasWeather.com said in its Wednesday mid-day update that the arrival of cooler temperatures around Christmas Eve would begin to raise heating demand, while a not very frightening weather system over the East Coast will pave the way for a series of colder blasts that will tap much more cold Canadian air, and even Arctic air. The pattern will last through New Year Day, but it was still unclear how far into the US it will extend and how fast it will reach the East.

“Once the cold becomes established, it’s likely to continue over the northern US through January 3-4th, with Arctic air just across the Canadian border,” NatGasWeather.com said in the Wednesday mid-day update. “This will lead to the next important period to watch as what happens after January 4-5th is uncertain and there’s no guarantees cold air will hold over the northern US, and if it does it might not cover enough territory to bring strong enough overall national heating demand.”

Temperatures

According to AccuWeather.com, temperatures in New York will range between 43 and 52 degrees on Saturday, above the average 29-40, before slipping to 26-36 degrees on January 1st. Chicago will also be warmer than usual tomorrow, ranging between 26 and 45 degrees compared to the average 20-33, but a following cold snap will push readings to 20-28 degrees five days later.

Down South, Houston will reach 72 degrees tomorrow, 9 above usual, before sliding to the below-average 39-50 degrees on December 31st. On the West Coast, Los Angeles will enjoy mostly sunny weather through the next ten days, with max temperatures set to remain slightly below the average of 68 degrees during the period, while lows overall match the usual 47 degrees.

Pivot points

According to Binary Tribune’s daily analysis, January natural gas futures’ central pivot point stands at $3.074. In case the contract penetrates the first resistance level at $3.146 per million British thermal units, it will encounter next resistance at $3.261. If breached, upside movement may attempt to advance to $3.333 per mBtu.

If the energy source drops below its first support level at $2.959 per mBtu, it will next see support at $2.887. If the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.772 per mBtu.

In weekly terms, the central pivot point is at $3.615. The three key resistance levels are as follows: R1 – $3.785, R2 – $4.107, R3 – $4.277. The three key support levels are: S1 – $3.293, S2 – $3.123, S3 – $2.801.