Natural gas trading outlook: futures extend gains on cold weather, EIA data eyed

Natural gas rose on Tuesday as investors focused on weather forecasts calling for continuous cold blasts across the northern, central and eastern US. However, expectations for Thursdays EIA inventory report to show five-year average deficits turning into surpluses kept gains limited.

Natural gas for delivery in March traded $0.056 higher from Fridays close of $2.804 at $2.860 per million British thermal units at 9:42 GMT. Floor trading was suspended on Monday due to the Presidents’ Day holiday and transactions will be booked today for settlement purposes. The contract rose 3.35% on Friday to settle the week 8.6% higher at $2.804, snapping three straight weekly losses.

According to NatGasWeather.com, natural gas demand in the US will be high compared to normal through February 23rd, with a mild weather trend across the West over the following seven days, while the central US remains neutral and the East cold.

As the recent winter storms track out of the Southeast, a strong polar blast is sweeping through the northern and central US and will also push into the Southeast, bringing lows in the single digits and below zero. With much colder-than-usual readings set to last through Friday, heating demand in the impacted regions will be very strong, ensuring a much larger inventory decline for February 26ths report, compared to what we can expect in two days.

Texas and the Southern Rockies will also see some cooling with rain and snow today, but will warm back up later in the week, while widespread warmth across the West will help break records as highs range between the upper 60s and lower 80s.

Additional cold weather systems will arrive to the Midwest and Northeast this weekend, reintroducing sub-freezing temperatures to the Southeast as well, and will continue to track through during next week, keeping temperatures below the average.

The south-central US will experience some cold blasts next week, but will remain overall near the normal as the truly frigid air remains confined to the Northeast and Great Lakes where lows will be between 15 and 30 degrees below normal. Meanwhile, the West will continue to enjoy near or warmer-than-usual weather.

Temperatures

According to AccuWeather.com, readings in New York on February 20th will range between 5 and 19 degrees Fahrenheit, compared to the average 30-43, and will shift between 13-27 degrees three days later. Highs will firmly establish above the freezing point after February 26th. Chicago will see temperatures bottom at between -8 and -4 degrees on February 18th and 19th, well below the seasonal 22-23, and highs will fail to find stable ground above the freezing point before February 28th.

Down South, Texas City will range between 55 and 61 degrees on February 19th, compared to the average 52-65, and apart from the February 23rd-26th period, will experience seasonal or slightly cooler readings through March 3rd. On the West Coast, the high in Los Angeles tomorrow will be 74 degrees Fahrenheit, 5 above usual, with readings expected to hover near the seasonal through the end of the month.

Inventories

The Energy Information Administration reported last Thursday 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. 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.

This week’s report will likely show a draw of between 100 and 110 bcf as the tracked period’s warmer-than-usual conditions across the central, southern and western US are factored in, turning deficits into surpluses unseen since 2013. The five-year average decline for the week ended February 13th is 180 billion cubic feet, while inventories slid by 247 bcf during the comparable period a year earlier.

However, as cold weather began to spread its reach outside the Midwest and Northeast last weekend and this week, the following inventory report due on February 26th, and probably the next one as well, will likely show much larger inventory withdrawals, keeping supplies from extending surpluses and pinning them near the average.

Pivot points

According to Binary Tribune’s daily analysis, March natural gas futures’ central pivot point stands at $2.757. In case the contract penetrates the first resistance level at $2.858 per million British thermal units, it will encounter next resistance at $2.912. If breached, upside movement may attempt to advance to $3.013 per mBtu.

If the energy source drops below its first support level at $2.703 per mBtu, it will next see support at $2.602. If the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.548 per mBtu.

In weekly terms, the central pivot point is at $2.753. The three key resistance levels are as follows: R1 – $2.934, R2 – $3.065, R3 – $3.246. The three key support levels are: S1 – $2.622, S2 – $2.441, S3 – $2.310.