Natural gas trading outlook: futures set for second weekly drop on cold outbreak

Natural gas rose for a fourth day this week as frigid weather across the eastern and northern US offset a lean inventory withdrawal that pushed stockpiles to a surplus to the five-year average for the first time since 2013.

Natural gas for delivery in March traded 1.38% higher at $2.873 per million British thermal units at 9:37 GMT, having shifted between $2.874 and $2.801 during the day. The contract plunged to $2.772 on Thursday after the release of EIAs inventory report but managed to settle the day 0.1% higher at $2.834. Prices are up 2.5% this week.

The Energy Information Administration reported yesterday that US natural gas inventories fell by 111 billion cubic feet in the week ended February 13th, compared to analysts’ projections for a drop in the range of 105-111 bcf and the five-year average decline of 180 bcf. Stockpiles slid by 247 bcf during the comparable period a year earlier.

Total gas held in US storage hubs amounted to 2.157 trillion cubic feet, forming a surplus of 2.8% to the five-year average of 2.099 trillion from last week’s deficit of 0.5%. The surplus over the year-ago inventory level of 1.479 trillion cubic feet expanded to 45.8% from 31.4% a week earlier.

The five-year-average surplus, however, is not expected to last long as the current week’s widespread cold blasts across the northern, eastern and parts of the central US are factored in. Next week’s report is expected to show an inventory decline well above the normal, probably over -200 bcf. Moreover, if reinforcing cold blasts follow this weekend and next week, this would line up another significant inventory decline for the following week as average withdrawals fall steeply, bearing the potential to bring inventories back to ~100 bcf deficits through the end of the month.

According to NatGasWeather.com, natural gas demand in the US will be very high compared to normal through February 26th.

The eastern US remains in the grip of polar air, which has pushed deep over the Southeast Coast and Florida. Another impressive winter storm will develop over the northern and eastern US on Saturday, bringing heavy snow accumulations over the East Coast. Meanwhile, the Southwest and Texas will remain quite warm as highs range between the upper 60s and lower 80s

Additional cold systems will arrive to the north-eastern US late this weekend, keeping temperatures across the Southeast below the freezing point as well, and will continue to track through during next week, inducing strong national heating demand.

The south-central US will also see some cooling, but will remain mostly near normal as the truly frigid air remains confined to the Northeast and Great Lakes. The West will continue to enjoy near or warmer-than-usual weather through the end of the month.

A notable change in weather patterns may come in early March when cold blasts across the East ease, paving the way for the return of mild weather, while Pacific systems hit the West with cooler conditions.

Temperatures

According to AccuWeather.com, readings in New York on February 23rd will range between 8 and 24 degrees Fahrenheit, compared to the average 30-43, and will shift between 22 and 36 degrees two days later. Highs will firmly establish above the freezing point after February 28th. Chicago will range between -5 and 13 degrees on February 22nd, compared to the average of 24-38, and will see readings bottom at 6 degrees three days later. Highs are not expected to find stable ground above the freezing point before March 6th.

Down South, Houston will range between 60 and 75 degrees tomorrow, compared to the average 50-67. A brief period of cooling will see lows drop in the upper 30s and lower 40s, before rising back to near-seasonal levels on February 27th. On the West Coast, Los Angeles will enjoy mostly seasonal weather throughout February, with readings set to range on February 23rd between 52 and 66 degrees, compared to the average 50-69.

Pivot points

According to Binary Tribune’s daily analysis, March natural gas futures’ central pivot point stands at $2.830. In case the contract penetrates the first resistance level at $2.889 per million British thermal units, it will encounter next resistance at $2.943. If breached, upside movement may attempt to advance to $3.002 per mBtu.

If the energy source drops below its first support level at $2.776 per mBtu, it will next see support at $2.717. If the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.663 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.