Natural gas futures weekly recap: January 19 – January 23

Natural gas rallied more than 5% on Friday but ended the very volatile week lower amid forecasts for active weather through the first week of February, with significant temperature differentials between the North and the South.

Natural gas for delivery in February rose 5.33% to $2.986 on Friday, trimming its weekly decline to 4.5%. Prices slid to $2.766 on Thursday, the lowest since September 20th, 2012. The contract has fallen in eight out of the last nine weeks.

Prices drew support as weather data turned colder for the northern and eastern US in the beginning of February, but gains were capped as the remaining portions of the country are expected to enjoy seasonal or slightly warmer weather.

According to NatGasWeather.com, natural gas demand in the US will be moderate compared to normal through January 29th, with a warmer weather trend for the West during the following seven days, while the East will experience colder conditions.

A weather system will bring heavy rains over the Southeast during the weekend and then track along the East Coast. A strong cold blast will hit the Great Lakes and Northeast on Monday, pushing temperatures to 10-15 degrees Fahrenheit below normal, while readings over Texas and the central US warm up to above seasonal, peaking in the mid 70s.

Frigid Arctic air is expected to infiltrate the far northern US on February 1-3rd, NatGasWeather.com said in a Friday mid-day update, which may be followed by another reinforcing cold blast, significantly boosting heating demand.

“This could make the markets a bit nervous going into the weekend, as this is a cold enough of an air mass that if it were to trend further south with frigid temperatures, it would likely be considered quite bullish for weather sentiment,” NatGasWeather.com said.

Temperatures

According to AccuWeather.com, readings in New York will range between 15 and 27 degrees on January 26th, compared to the average 27-38, before dropping to 29-34 degrees three days later. The low in Chicago on January 25th will be 17 degrees Fahrenheit, 1 below usual, before readings jump to 33-36 degrees on January 28th.

Down South, temperatures in Houston will max out at 67 degrees tomorrow, 4 above normal, before reaching 70 degrees on January 27th. On the West Coast, Los Angeles will see the mercury top 81 degrees today, 13 above the average, and will remain warmer than usual through the end of the month.

US storage levels

The EIA reported on Thursday that US natural gas inventories fell by 216 billion cubic feet in the seven days through January 16th, compared to analysts’ projections for a drop in the range of 220-230 bcf. This was above the five-year average decrease of 176 bcf and last year’s decline of 133 bcf during the comparable period.

Total gas held in US storage hubs amounted to 2.637 trillion cubic feet, expanding the deficit to the five-year average of 2.790 trillion to 5.5% from 3.8% during the previous period. The surplus to the year-ago stockpile level of 2.438 trillion cubic feet narrowed to 8.2% from 11.0% a week earlier.

Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York, said for Bloomberg: “This storage number was a bit surprising, and it adds to the bearish sentiment that has developed in this market. Production growth is largely holding steady and supply is a real concern”

Next week’s report is expected to reflect a much thinner inventory withdrawal that would bring deficits to ~100 bcf once again as the recent overall mild conditions across the US get factored in. The five-year average decline for the week is 168 billion cubic feet, while inventories fell by 219 bcf during the comparable period last year.

Pivot points

According to Binary Tribune’s daily analysis, February natural gas futures’ central pivot point stands at $2.945. In case the contract penetrates the first resistance level at $3.035 per million British thermal units, it will encounter next resistance $3.084. If breached, upside movement may attempt to advance to $3.174 per mBtu.

If the energy source drops below its first support level at $2.896 per mBtu, it will next see support at $2.806. If the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.757 per mBtu.

In weekly terms, the central pivot point is at $2.933. The three key resistance levels are as follows: R1 – $3.101, R2 – $3.215, R3 – $3.383. The three key support levels are: S1 – $2.819, S2 – $2.651, S3 – $2.537.