Natural gas trading outlook: futures recover as cold weather offsets inventory data

Natural gas rose for a fourth day this week, recovering from Thursdays drop spurred by a bearish EIA inventory report, as the northern and eastern US remained in the grip of colder-than-usual weather, inducing significantly stronger heating demand.

Natural gas for delivery in March traded 0.41% higher at $2.724 per million British thermal units at 10:45 GMT, having shifted in a daily range of $2.748-$2.699. The contract slid 3% on Thursday to $2.713 per mBtu but is up 5.7% so far this week.

The Energy Information Administration reported yesterday that US natural gas stockpiles fell by 160 billion cubic feet in the week ended February 6th, beneath analysts’ expectations for a decline in the range of 165-175 bcf and well below the five-year average draw of 178 bcf. Stockpiles slid by 234 bcf during the comparable week a year earlier.

Total gas held in US storage hubs amounted to 2.268 trillion cubic feet, narrowing the deficit to the five-year average of 2.279 trillion to 0.5% from 1.2% a week earlier. The surplus to the year-ago storage of 1.726 trillion cubic feet expanded to 31.4% from 23.9% during the preceding period.

The bearish report, however, saw no follow-through as forecasts for colder-than-usual weather across large parts of the US spurred speculations for much higher heating demand.

According to NatGasWeather.com, natural gas demand in the US will be high compared to normal through February 19th, with warm conditions set to dominate the West over the next seven days, while the central US turns cooler and the East remains cold.

A fresh cold blast will hit the northern and eastern US on Saturday, while also succeeding to push into the Southeast, introducing sub-freezing temperatures to the region and significantly boosting heating demand. Heavy snowfall will also be present, especially over the Northeast coast. The West will continue to enjoy dry and warm conditions this weekend that will spread into the central US, with temperatures across Texas and California set to peak in the 70s and 80s.

Early next week, a weather system will bring showers across Texas and the southern Plains before a cold blast hits the northern US on Tuesday and Wednesday and pushes into the countrys central regions.

Weather systems carrying rain, snow and below-average temperatures will continue to track across the Midwest and into the East throughout next week, while the Southeast also sees some cold pushes, but remains overall mild. The most threatening truly cold air, however, will remain confined to the Great Lakes and Northeast, while the West remains near or warmer than usual.

Last weekend and this past week’s warm conditions over the central, southern and western US will lead to a much thinner withdrawal for EIAs next report due at February 19th. Supplies through the third week of February are expected to turn deficits to the five-year average into surpluses.

However, the persisting cold conditions over the northern and eastern US and their occasional spreading into the Southeast and central US will prevent surpluses from expanding, keeping supplies near the average through the end of the month. Bullish sentiment will persist especially if cold winter blasts continue to spur high heating demand into the beginning of March.

Temperatures

According to AccuWeather.com, readings in New York on February 13th will bottom at 4 degrees Fahrenheit, 25 below usual, and will range between 12 and 24 degrees on February 19th, compared to the average 30-42. A return to seasonal and slightly lower readings is expected after February 22nd. Chicago will see temperatures bottom at 0 degrees on February 14th and again three days later, 22 below usual, with highs not expected to find stable ground above the freezing point before February 28th.

Down South, Houston will reach 70 degrees on February 15th, 4 above usual, and will experience slightly lower-than-usual readings through the end of the month. On the West Coast, temperatures in Los Angeles will max out 81-84 degrees on February 14-15th, compared to the average of 68, before easing to the mid and lower 70s during the following five days.

Pivot points

According to Binary Tribune’s daily analysis, March natural gas futures’ central pivot point stands at $2.758. In case the contract penetrates the first resistance level at $2.838 per million British thermal units, it will encounter next resistance at $2.962. If breached, upside movement may attempt to advance to $3.042 per mBtu.

If the energy source drops below its first support level at $2.634 per mBtu, it will next see support at $2.554. If the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.430 per mBtu.

In weekly terms, the central pivot point is at $2.643. The three key resistance levels are as follows: R1 – $2.719, R2 – $2.859, R3 – $2.935. The three key support levels are: S1 – $2.503, S2 – $2.427, S3 – $2.287.