Natural gas trading outlook: futures head for weekly loss on mild conditions

Natural gas fell on Friday and was on track for a sizable weekly decline as near-seasonal and warmer conditions continued to cover the majority of the US, while the Energy Information Administrations weekly supply report showed on Thursday a withdrawal in line with expectations.

Natural gas for delivery in April traded 1.57% lower at $2.691 per million British thermal units at 9:41 GMT, shifting in a daily range of $2.759-$2.688. The contract fell 3.2% on Thursday to $2.734 and is down 5% for the week so far.

The Energy Information Administration said yesterday that US natural gas stockpiles fell by 198 billion cubic feet in the seven days through March 6th, compared to analysts’ median estimate of -191 bcf and in the upper limit of the expectations range. This was well above the five-year average withdrawal for the week of 116 billion cubic feet, while stockpiles slid by 189 bcf a year ago.

Total gas held in US storage hubs amounted to 1.512 trillion cubic feet, expanding a deficit to the five-year average of 1.737 trillion to 13.0%, or 225 bcf, from 7.7% a week earlier. Inventories stood at 1.029 trillion a year ago, 46.9% below current levels.

Mild weather

However, the above-average inventory withdrawal was already largely factored in, leaving investors focus shifted toward bearish weather data.

According to NatGasWeather.com, natural gas demand in the US will be low-to-moderate compared to normal through March 26th, with a neutral-to-slightly-warmer weather trend for the following seven days.

The majority of the US remains engulfed by seasonal or slightly warmer weather, significantly curbing heating demand compared to recent weeks, with widespread highs in the upper 60s and 70s. A weather system that has brought showers to the south and east-central US will track into the Northeast this weekend, carrying periods of rain, snow and several degrees of cooling.

A cold blast hit New England yesterday but is not expected to push any deeper into the US, leaving high-population cities out of harms way. The western and central US, apart from Texas, will remain warmer-than-usual over the coming days.

Early next week, a fresh cold blast will impact the northern US but will likely fail to push southward, NatGasWeather.com said, leaving only the Northeast exposed to truly cold temperatures.

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 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-normal conditions.

Next weeks inventory report by the Energy Information Administration is expected to show a near-average withdrawal as last weekend and the current weeks widespread thaw is accounted for, especially as the cold Canadian front that has hit the far Northeast fails to push deeper. The five-year average draw for the week ending March 13th is 45 bcf, while stockpiles slid by 69 bcf a year ago.

The report after, due on March 26th, will also likely reflect a near-average withdrawal as the majority of the US enjoys mostly seasonal weather this weekend and next week, while the cold front expected to arrive over the North on Tuesday and Wednesday probably fails to impress. The five-year average withdrawal for the week ended March 20th is 19 billion cubic feet, while the year-ago storage drop was 56 bcf.

Temperatures

According to AccuWeather.com, the high in New York on March 16th will be 54 degrees Fahrenheit, 4 above usual, and readings are expected to remain near-normal or slightly cooler through the end of the month. Chicago will see temperatures range between 34 and 54 degrees on Sunday, compared to the average 30-46, before peaking at 62 degrees two days later.

Down South, Texas City will enjoy seasonal weather over the next seven days, with highs set to range between 67 and 75 degrees, compared to the average 70-71. On the West Coast, the mercury in Los Angeles will peak at 90 degrees today and tomorrow, 20 above usual, before easing to the upper 70s and lower 80s over the following nine days.

Pivot points

According to Binary Tribune’s daily analysis, April natural gas futures’ central pivot point stands at $2.774. In case the contract penetrates the first resistance level at $2.824 per million British thermal units, it will encounter next resistance at $2.913. If breached, upside movement may attempt to advance to $2.963 per mBtu.

If the energy source drops below its first support level at $2.685 per mBtu, it will next see support at $2.635. If the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.546 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.