Natural gas trading outlook: futures extend gains ahead of EIA storage data

Natural gas rose for a second day, drifting further away from a 2-year low, before a report by the Energy Information Administration likely shows an above-average weekly drop in US stockpiles last week. However, forecasts for mild weather across the US in the coming 10 days limited gains.

On the New York Mercantile Exchange, natural gas for delivery in February gained 1.63% by 9:46 GMT to $2.991 per million British thermal units. Prices held in a daily range of $2.993-$2.932. The energy source surged yesterday 5.3% to $2.943, offsetting the previous sessions 5.1% drop when the contract hit a low of $2.783, the weakest level since September 2012.

According to NatGasWeather.com, natural gas demand in the US through January 20th will ease to moderate, compared to normal, with a slightly warmer weather trend for the following seven days that will become neutral late in the outlook.

Cold Canadian air will maintain low readings over the Great Lakes and interior Northeast for another day, while temperatures over the Southern US reach into the 50s and 60s. A milder weather system will move from the Southwest into northern Texas and the Plains today, paving the way for stronger Pacific flows to arrive later this week. A more noteworthy system will track across the the northern US on Sunday into Monday, carrying rain and snow.

However, with the coldest Canadian air expected to be forced out of the US, with a few exceptions the entire country will enjoy warmer-than-usual weather beginning late this week and extending into the next, with readings set to jump to 10-20 degrees Fahrenheit above seasonal.

Colder Canadian systems are expected to return to the northern US around January 23rd-24th, NatGasWeather.com reported, but below-freezing temperatures are not likely to reach too far southward, keeping the high-demand central and southern US states out of harms way.

Temperatures

According to AccuWeather.com, readings in New York on January 16th will range between 20 and 36 degrees, compared to the average 27-38, before rising to 32-40 degrees on January 21st. Chicago will also be colder-than-usual on Friday, ranging between 23 and 27 degrees, 4-5 below normal, but will enjoy seasonal and slightly warmer weather between January 19th-24th.

Down South, readings in Houston will swing between 35 and 53 degrees tomorrow, compared to the average 45-63, but will warm up to seasonal and slightly above-seasonal levels from January 17th through almost the end of the month. On the West Coast, Los Angeles will see highs reach 74 degrees tomorrow, 6 above normal, with temperatures set to remain above usual levels through January 22nd.

Inventories

The Energy Information Administration is expected to report that US natural gas inventories slid by 220-230 billion cubic feet in the week ended January 9th. If confirmed, this would exceed the five-year average drop of 190 bcf, bringing the deficit back to ~100 bcf. Supplies dropped by 268 billion cubic feet during the comparable week a year earlier.

The EIA reported last Thursday that US natural gas inventories slid by 131 billion cubic feet (bcf) during the week ended January 8th, compared to analysts’ projections for a drop of 121 bcf. Supplies declined by 191 billion cubic feet during the same week a year earlier.

Total gas held in US storage hubs amounted to 3.089 trillion cubic feet, narrowing the deficit to the five-year average of 3.156 trillion to 2.1% from 2.5% during the previous week. Stockpiles stood at 2.839 trillion cubic feet a year ago, 8.8% below current levels

Pivot points

According to Binary Tribune’s daily analysis, February natural gas futures’ central pivot point stands at $2.903. In case the contract penetrates the first resistance level at $3.011 per million British thermal units, it will encounter next resistance at $3.079. If breached, upside movement may attempt to advance to $3.187 per mBtu.

If the energy source drops below its first support level at $2.835 per mBtu, it will next see support at $2.727. If the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.659 per mBtu.

In weekly terms, the central pivot point is at $2.978. The three key resistance levels are as follows: R1 – $3.144, R2 – $3.343, R3 – $3.509. The three key support levels are: S1 – $2.779, S2 – $2.613, S3 – $2.414.