Natural gas trading outlook: futures extend drop on mild weather, EIA report eyed

Natural gas fell for a third day on Thursday as seasonal and warmer weather engulfed almost the entire US, including the North and East. A report by the Energy Information Administration later today is expected to show an inventory withdrawal below the five-year average.

Natural gas for delivery in May traded 0.42% lower at $2.594 per million British thermal units at 9:02 GMT, shifting in a daily range of $2.621-$2.591 per mBtu. The contract slid 1.33% on Wednesday to $2.605, having earlier dropped to $2.583, the lowest in 2-1/2 years.

The Energy Information Administration is expected to report at 14:30 GMT that US natural gas inventories fell by 10 billion cubic feet in the week ended March 27th as widespread mild weather dominated the majority of the country last week, although some regions saw light cooling demand as well. The five-year average withdrawal for the tracked week is -22 bcf, while gas in storage declined by 71 bcf a year ago.

According to NatGasWeather.com, natural gas demand in the US will be low-moderate compared to normal through April 8th, with a neutral weather trend for the following seven days.

The Great Lakes and eastern US will see a nice warm-up today as temperatures across the North reach the 60s, while the South enjoys highs in the 60s and 70s, and Texas even sees some early season cooling demand due to local extremes in the 90s.

As expected, however, the warm-up will be short-lived as a fresh cold front pushes into the northern and eastern US on Friday into Saturday, sending overnight lows below the freezing point through April 6-7th. Cooler conditions will also establish over the southern Plains and Texas during the weekend, easing the need for cooling as highs drop back into the 60s and 70s. The West will be mainly warm and dry, although the Northwest will be cooler as Pacific weather systems with rain and snow arrive.

However, the upcoming brief cool-down will likely be the last for early Spring and temperatures are expected to again warm nicely over most of the US starting mid-next week. Typical Spring weather systems with showers and thunderstorms will track through the US, NatGasWeather.com said, but the central, southern and eastern US will enjoy seasonal or slightly warmer conditions. Pacific weather systems with showers will continue to affect the West, keeping temperatures near normal or slightly lower.

Next weeks inventory report, due on April 9th, will likely bring a small inventory build instead of an average decline as seasonal and warmer weather persists this week. The five-year average inventory drop for the seven days ended April 3rd is -2 billion cubic feet, while stockpiles declined by 8 bcf during the comparable period a year earlier.

The Energy Information Administration reported last Thursday that US natural gas stockpiles rose by 12 billion cubic feet in the week ended March 20th. Total gas held in US storage hubs amounted to 1.479 trillion cubic feet, narrowing a deficit to the five-year average inventories of 1.673 trillion to 11.6% from 13.3% a week earlier. The surplus over year-ago stockpile levels expanded to 63.6% from 52.8% last week.

Readings

According to AccuWeather.com, New York will see temperatures peak at 62-63 degrees Fahrenheit today and tomorrow, compared to the average 56, before establishing in the low-mid 50s through April 14th. Readings in Chicago will max out at 62 degrees on April 3rd, 8 above usual, followed by a drop to the low-mid 50s through April 13th.

Down South, highs in Texas City will max out at 79-80 degrees on April 2nd-3rd, compared to the average 74, and will remain near that range through April 10th, before dropping a few degrees. On the West coast, the high in Los Angeles on April 3rd will be 87 degrees, 16 above usual, and 79 degrees the next day, but readings will thereafter drop to the upper 60s and lowers 70s for the rest of the month.

Pivot points

According to Binary Tribune’s daily analysis, May natural gas futures’ central pivot point stands at $2.619. In case the contract penetrates the first resistance level at $2.656 per million British thermal units, it will encounter next resistance at $2.706. If breached, upside movement may attempt to advance to $2.743 per mBtu.

If the energy source drops below its S1 level at $2.569 per mBtu, it will next see support at $2.532. In case the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.482 per mBtu.

In weekly terms, the central pivot point is at $2.696. The three key resistance levels are as follows: R1 – $2.776, R2 – $2.913, R3 – $2.993. The three key support levels are: S1 – $2.559, S2 – $2.479, S3 – $2.342.