Natural gas trading outlook: futures dip on outlook for mild weather

Natural gas extended last weeks losses into Monday as forecasts called for warmer-than-usual weather across the majority of the US through early-February, while this weeks inventory report by the EIA is expected to show a smaller-than-average drop in stockpiles.

Natural gas for delivery in February slid 4.66% to $2.847 by 9:30 GMT on the New York Mercantile Exchange, having shifted in a daily range of $2.935-$2.842. The energy source jumped 5.33% on Friday but still settled the week 4.5% lower at $2.986, its eight weekly decline in nine.

According to NatGasWeather.com, natural gas demand in the US through January 31st will be moderate compared to normal, with a slightly warmer weather trend for the following seven days, apart from the Northeast where temperatures will trend lower.

Higher-than-normal readings will continue to cover the western and central US this week, with highs over Texas and the Southern Plains set to hover near the mid-70s. However, a cold weather system will impact the Midwest and Northeast on Monday, with moderate-to-heavy snow accumulation that will reach from New York through New England, driving much stronger heating demand.

Stronger cold blasts will hit the Great Lakes and Northeast late this week with frigid Arctic temperatures, but the remaining portions of the country will be quite mild.

Frigid Arctic conditions will continue to impact the Northeast early next week, while also spilling over parts of the Great Lakes, with below-average temperatures inducing strong local heating demand. However, the truly cold air will struggle to push southward out of these regions, keeping the rest of the country mild for mid-winter standards. Some weather systems might occasionally bring cooler readings to Texas and the Southwest, but apart from the Northeast and Great Lakes the US will be near or much warmer than normal.

Temperatures

According to AccuWeather.com, readings in New York will range between 12 and 29 degrees on January 28th, below the average 27-39, and will bottom at 8 degrees on February 2nd, 19 below usual. Boston will see the mercury drop to as much as 7 degrees on January 28th, 15 below average, while Chicago ranges between 29 and 32 degrees, compared to the usual 18-32.

Down South, the high in Houston on January 27th will be 73 degrees, 9 above the average, before easing to seasonal levels three days later. On the West Coast, Los Angeles will see readings max out at 73 degrees on January 28th, 5 above usual, with temperatures set to max out in the low and mid 70s through the first ten days of February.

Supplies

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.

This 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. Early estimates called for a draw of 40-50 bcf below the five-year average decline for the week at -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.