Natural gas trading outlook: futures steady as active weather continues

Natural gas was little changed on Monday after rising for a third week last week with weather forecasts calling for an active Spring pattern to continue through the rest of May, although past the short-term sentiment remained bearish biased.

Natural gas for delivery in June traded 0.50% lower at $3.001 per million British thermal units at 7:57 GMT, shifting in a daily range of $3.022 – $2.978. The contract rose 0.3% on Friday to $3.016, settling the week 4.7% higher and adding to the previous two weeks combined gains of nearly 12%.

The Energy Information Administration reported on Thursday that US natural gas inventories rose by 111 billion cubic feet in the week ended May 8th, below analysts’ consensus forecast of 116 bcf. Still, the reading was well above the five-year average gain for the week of 82 bcf and the year-ago increase of 101 bcf. Despite the comfortable readings, analysts attributed the surprisingly low build to a drop in production due to maintenance, as well as stronger exports.

Total gas held in US storage hubs amounted to 1.897 trillion cubic feet, narrowing the deficit to the five-year average of 1.935 trillion to 2.0%, or 38 bcf, from 3.6% a week earlier. Inventories were at a surplus of 65.7% compared to year-ago stockpiles.

Weather

Despite the somewhat bullish report and the outlook for active weather, excessive gains are expected to remain capped as most of the country experiences only a minor need for heating and cooling demand.

According to NatGasWeather.com, natural gas demand in the US will be very low to low through May 23rd, with a mild weather trend for the north-western US over the following seven days, while the South becomes very warm.

Warm weather has engulfed the Great Lakes and East Coast, with highs reaching the 70s and 80s, while the Southeast sees temperatures max out in the mid 80s and lower 90s, driving moderate demand for cooling. However, a weather system currently passing through the north-central US will bring heavy showers and thunderstorms, including deep into Texas and the South. As the week progresses, the system will also lower temperatures to a few degrees below normal across the North before highs recover during the weekend. The West will continue to be impacted by arriving Pacific systems.

Next week, active weather in a typical Spring fashion will remain in force. The northern US will enjoy near-seasonal readings, slightly lower locally, while the South becomes very warm, especially the Southeast. The West will also be near normal due to Pacific weather systems.

“We continue to watch closely for how the early June pattern sets up, as there will be increasing heat spreading out of the southern US, but it would need to do so aggressively to significantly impact future builds,” NatGasWeather.com said in an e-mailed report.

Inventories

Last weeks surprisingly smaller inventory build influenced a downward revision to the upcoming report, which however is still expected to come in well above the average, drawing supplies closer to flipping into a surplus to the average.

The Energy Information Administration is expected on Thursday to register a jump of around 100 billion cubic feet in stockpiles during the week ended May 15th, compared to the five-year average gain of 89 bcf and the year-ago increase by 106 bcf.

The report after, due out on May 28th, will likely reflect a larger gap to the average, as compared to this weeks data, due to persisting mild conditions spread across the US. The five-year average build for the week ended May 22nd is 95 billion cubic feet, while supplies rose by 113 bcf during the comparable period a year earlier.

Readings

According to AccuWeather.com, highs in New York will peak in the low-mid 70s through May 31st, apart from a brief warm-up on May 24-26th. Chicago will peak at 53 degrees on May 20th, 19 below normal, before recovering in the upper 60s and low 70s through May 27th.

Down South, readings in Houston will max out at 88-90 degrees through May 23rd, compared to the average of 86-87 degrees, before easing a few degrees afterwards. On the West Coast, highs in Los Angeles will range between 68 and 70 degrees the next five days, below the usual 74-75, followed by a slight warm-up for the rest of the month.

Pivot points

According to Binary Tribune’s daily analysis, June natural gas futures’ central pivot point stands at $3.008. In case the contract penetrates the first resistance level at $3.044 per million British thermal units, it will encounter next resistance at $3.073. If breached, upside movement may attempt to advance to $3.109 per mBtu.

If the energy source drops below its S1 level at $2.979 per mBtu, it will next see support at $2.943. In case the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.914 per mBtu.

In weekly terms, the central pivot point is at $2.946. The three key resistance levels are as follows: R1 – $3.106, R2 – $3.197, R3 – $3.357. The three key support levels are: S1 – $2.855, S2 – $2.695, S3 – $2.604.