Natural gas trading outlook: futures drop on US weather, inventories

Natural gas shifted between gains and losses on Monday as the majority of the US remained engulfed by mild conditions, while investors eyed Thursdays EIA inventory report that is expected to show a thinner-than-average withdrawal.

Natural gas for delivery in April traded 0.59% lower at $2.711 per million British thermal units at 10:22 GMT, having ranged between $2.743 and $2.693 during the day. The contract fell 0.26% on Friday to $2.727, settling the week 4% lower.

According to NatGasWeather.com, natural gas demand in the US will be low-to-moderate compared to normal through March 21st, with a neutral weather trend for the following seven days.

Mild conditions across the US will persist throughout the week, with widespread highs into the 60s through 80s in some regions, while the Northeast remains seasonal or cooler as temperatures peak in the 40s and 50s. A fresh cold blast will hit the northern US on Tuesday, carrying rain and snow, but truly cold temperatures will impact only the upper Great Lakes and Northeast, allowing for the rest of the country to continue enjoying pleasant readings.

A stronger cold system will impact the Midwest and Northeast on Friday and last through the weekend, driving stronger heating demand for its duration that could extend to next Tuesday. However, the cold front may experience difficulties in pushing deeper into the country and will need close monitoring, NatGasWeather.com said.

Next week, Canadian weather systems will sweep across the Great Lakes and eastern US, bringing rain, snow and cooler-than-average temperatures, while the West remains warm and dry. The central and southern US will experience near-normal readings as weak weather systems bring a brief period of cooling before warmer conditions return shortly afterwards.

Temperatures

According to AccuWeather.com, colder-than-usual weather will establish over New York on March 18-20th as lows drop to 28-34 degrees, compared to the average 36, but readings will once again reach seasonal levels as of March 21st. Chicago will see the mercury surge to 73 degrees on March 17th, 26 above usual, before sliding to the mid 40s over the following week.

Down South, Houston will enjoy warmer-than-seasonal weather this week as temperatures max out at 74-79 degrees, compared to the average 73, and will remain mostly seasonal through the end of the month. On the West Coast, the high in Los Angeles on March 18th will be 74 degrees Fahrenheit, 4 above usual, and will reach 83 degrees five days later.

Supplies

A larger-than-average weekly withdrawal reported by the EIA last Thursday failed to spur much bullish sentiment as investors focused primarily on bearish weather developments.

US natural gas stockpiles fell by 198 billion cubic feet in the seven days through March 6th, a withdrawal in the upper range of expectations and above the five-year average drop of 116 bcf. 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.

This was the last of a series of above-average withdrawals as the widespread thaw across the US curbed significantly national heating demand. Moreover, this Thursdays supply report for the seven days ended March 13th trended lower as last weeks cold blast across the North played out less impressive. The agency is expected to report a storage withdrawal of around 30 billion cubic feet, compared to the five-year average decline of 45 bcf, while stockpiles slid by 69 bcf a year ago.

The report after, due on March 26th, is now expected to register an inventory build, instead of a near-average decline, as the reach of this Tuesdays cold blast is limited to the Northeast and the rest of the US enjoys mostly seasonal weather. 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.

The following report, due on April 2nd, may reflect a near-average inventory decline, depending on how Fridays cold blast plays out and for how long it persists.

Pivot points

According to Binary Tribune’s daily analysis, April natural gas futures’ central pivot point stands at $2.720. In case the contract penetrates the first resistance level at $2.766 per million British thermal units, it will encounter next resistance at $2.805. If breached, upside movement may attempt to advance to $2.851 per mBtu.

If the energy source drops below its first support level at $2.681 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 $2.596 per mBtu.

In weekly terms, the central pivot point is at $2.751. The three key resistance levels are as follows: R1 – $2.840, R2 – $2.953, R3 – $3.042. The three key support levels are: S1 – $2.638, S2 – $2.549, S3 – $2.436.