Natural gas trading outlook: futures hover near $3 amid active weather

Natural gas was little changed on Tuesday, following similar performance on Monday, as investors awaited this weeks inventory report and weather forecasts continued to call for active weather across the US for the rest of the month.

Natural gas for settlement in June traded 0.47% higher at $3.024 per million British thermal units at 7:42 GMT, shifting in a daily range of $3.029-$3.002. The contract fell 0.2% yesterday to $3.010 after settling the previous week 4.7% higher.

According to NatGasWeather.com, natural gas demand in the US will be very low to low, compared to normal, through May 25th, with overall bearish headwinds set to persist through the following seven days as well.

Warm weather has engulfed the Great Lakes and East Coast, with highs reaching the 70s and 80s, while readings over the Southeast and the immediate Atlantic Coast 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 and Mid-Atlantic coast, followed by a stronger blast on Thursday and Friday and a warm-up 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, NatGasWeather.com said. The northern US will enjoy near-seasonal readings, slightly lower than normal over the Midwest, while the South becomes very warm, especially the Southeast. The West will also be near normal due to Pacific weather systems.

Readings

According to AccuWeather.com, the high in New York on May 20th will be 69 degrees Fahrenheit, 3 below normal, before rising to 75 degrees two days later. Chicago will peak at 57 degrees today and tomorrow, 15 below normal, before recovering to the upper 60s and low 70s afterwards.

Down South, readings in Houston will max out at 85-87 degrees through May 24th, compared to the average of 86-87 degrees, before easing a few degrees later on. On the West Coast, highs in Los Angeles will range between 67 and 73 degrees through May 26th, compared to the usual 74-75, followed by a slight warm-up for the rest of the month.

Inventories

Prices rallied last week after 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. 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.

Last weeks data also 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. This Thursdays EIA report is expected 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 week’s 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.

Pivot points

According to Binary Tribune’s daily analysis, June natural gas futures’ central pivot point stands at $3.012. In case the contract penetrates the first resistance level at $3.046 per million British thermal units, it will encounter next resistance at $3.082. If breached, upside movement may attempt to advance to $3.116 per mBtu.

If the energy source drops below its S1 level at $2.976 per mBtu, it will next see support at $2.942. In case the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.906 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.