Natural gas trading outlook: futures fall ahead of EIA inventory data

Natural gas slid on Tuesday before a government report supposedly shows another much smaller than the average inventory decline, helping narrow down deficits. However, prices remained supported, with a bullish bias, after rallying 5.5% on Monday as weather forecasts called for much colder than usual weather throughout the week.

Natural gas for delivery in February traded 1.94% lower at 3.137 per million British thermal units by 9:58 GMT, having shifted in a daily range of $3.178-$3.130. The energy source rallied 5.47% on Monday to $3.199 per mBtu.

According to NatGasWeather.com, national natural gas demand in the US will be high compared to normal over the next seven days. Much of the country is currently engulfed by frigid temperatures, with readings across the west-central interior regions down as much as 15-30 degrees Fahrenheit below usual. With lows falling beneath zero for most of the central US and single digits and teens hitting Texas and the Northeast, heating demand is expected to remain significantly higher compared to the previous few weeks.

The West will also see its fair share of cold weather, with lows in California set to slide to the 20s and 30s. Later in the week, the cold grip will loosen as a strong weather system brings warmer temperatures over the southern and eastern US, but frigid Arctic air will swiftly return.

Early next week, cold weather will again dominate the central and northern US, pushing heating demand higher. However, this time the Arctic blast may not extend much into the South, leaving the regions high-consumption states, including Texas, out of harms way. A brief warm-up in the North might follow around January 10th, but cold conditions are sure to return, ensuring hefty inventory withdrawals.

Temperatures

According to AccuWeather.com, temperatures in New York on December 31st will range between 25 and 34 degrees Fahrenheit, below the average of 28-39, before briefly jumping to 32-42 on January 4th and then falling back to slightly below the average for the following three days. Chicago will range between 17 and 19 degrees tomorrow, compared to the seasonal 19-32, and will remain colder than usual at 12-22 degrees on January 5th.

Down South, Houston will see daily readings of 40-49 degrees on December 31st, below the average 45-63, followed by a warm-up to 40-58 degrees on January 4th. On the West Coast, Los Angeles will range between 37 and 56 degrees tomorrow, compared to the usual 47-68, and apart from a brief cooling through January 3rd, will enjoy above-seasonal readings until January 10th.

Supplies

The Energy Information Administration reported last Wednesday that US natural gas stockpiles slid 49 billion cubic feet in the week ended December 19th. This 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.

This weeks report, to be released a day earlier on Wednesday due to the New Years Day holiday, is also expected to show a much thinner decline than the average as mild conditions last week curbed heating demand. The EIA is likely to report that stockpiles fell by 30-39 billion cubic feet last week, compared to the five-year average decline of 114 billion cubic feet. If confirmed, this would allow for inventories to make up another 70-80 bcf on deficits, shrinking the gap to only ~100 bcf.

Pivot points

According to Binary Tribune’s daily analysis, February natural gas futures’ central pivot point stands at $3.152. In case the contract penetrates the first resistance level at $3.258 per million British thermal units, it will encounter next resistance at $3.316. If breached, upside movement may attempt to advance to $3.422 per mBtu.

If the energy source drops below its first support level at $3.094 per mBtu, it will next see support at $2.988. If the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.930 per mBtu.