Natural gas trading outlook: futures drop on mild weather, EIA data in focus

Natural gas ended two days of gains on Thursday as most of the US continued to experience seasonal or slightly warmer weather, while investors eyed todays stockpiles report by the Energy Information Administration.

Natural gas for delivery in April traded 1.20% lower at $2.790 per million British thermal units at 9:57 GMT, shifting in a daily range of $2.831-$2.781. The contract rose by 3.37% on Wednesday after it added little over 2% the prior day, largely erasing Mondays drop of nearly 5.7%.

According to NatGasWeather.com, natural gas demand in the US will be low-to-moderate compared to normal through March 18th, with a neutral weather trend for the following seven days.

Near-seasonal temperatures have established over the majority of the US, keeping national heating demand curbed. Periods of showers continue over the southern and east-central regions, with the weather system expected to track into the Northeast this weekend, bringing rain, snow and several degrees of cooling.

A strong Canadian front will hit the Great Lakes and Northeast today, pushing highs across New England down into the 20s and 30s, but will fail to infiltrate deeper southward, leaving most high-population cities out of harms way. The western and central US, apart from Texas, will remain warmer-than-usual over the next seven days.

Early next week, a fresh cold blast will hit the the northern US, but cooler temperatures will likely fail to push southward, NatGasWeather.com said. As the week progresses, Canadian weather systems will bring rain, snow and below-normal temperatures to the Great Lakes and eastern US, strengthening heating demand enough to keep inventory withdrawals near or slightly above the average. The West will enjoy warm and dry weather, while the South remains near-seasonal or slightly cooler due to periods of showers. The central US will also experience near-seasonal conditions.

Temperatures

According to AccuWeather.com, the high in New York on March 15th will be 48 degrees Fahrenheit, 1 below usual, and readings are expected to remain near-normal or slightly cooler through the end of the month. Chicago will see temperatures range between 44 and 55 degrees on Saturday, compared to the average 30-46, and will remain warmer-than-usual over the following five days.

Down South, Houston will enjoy seasonal weather this weekend as temperatures range between 53 and 73 degrees, and will remain near-average throughout next week. On the West Coast, highs in Los Angeles will peak at 90-92 degrees through March 16th, compared to the average 70, before easing to the upper 70s and lower 80s over the following two weeks.

Inventory report

Todays stockpiles report by the EIA will show another withdrawal well above the average, around -190 bcf, as last week’s Arctic outbreak is factored in, bringing deficits to above -200 bcf. The five-year average inventory decline for the week ending March 6th is 116 billion cubic feet, while stockpiles fell by 189 bcf a year ago. A decline below -180 bcf would be considered quite bearish and above -200 bcf – quite bullish.

However, this past weekend and the current week’s thaw will end the recent string of hefty inventory declines, causing a near-average withdrawal for the March 19th report, especially as the cold Canadian front that will hit the North today has a limited reach. The five-year average draw for the week ending March 13th is 45 bcf, while stockpiles slid by 69 bcf a year ago.

The Energy Information Administration reported last Thursday that US natural gas stockpiles fell by 228 billion cubic feet in the seven days through February 27th, in line with analysts’ expectations for a decline in the range of 222-235 bcf. Total gas held in US storage hubs amounted to 1.710 trillion cubic feet last week, expanding a deficit to the five-year average inventory level of 1.853 trillion to 7.7%, or -143 bcf, from 1.5% a week earlier.

Pivot points

According to Binary Tribune’s daily analysis, April natural gas futures’ central pivot point stands at $2.778. In case the contract penetrates the first resistance level at $2.894 per million British thermal units, it will encounter next resistance at $2.964. If breached, upside movement may attempt to advance to $3.080 per mBtu.

If the energy source drops below its first support level at $2.708 per mBtu, it will next see support at $2.592. If the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.522 per mBtu.

In weekly terms, the central pivot point is at $2.783. The three key resistance levels are as follows: R1 – $2.926, R2 – $3.012, R3 – $3.155. The three key support levels are: S1 – $2.697, S2 – $2.554, S3 – $2.468.