Natural gas trading outlook: futures extend drop on weather, inventory builds

Natural gas fell for a fourth day in five on Monday as weather forecasts saw no significant adjustments over the weekend, pointing to a warm pattern across the US that is gradually increasing cooling demand, although not yet enough to significantly impact the coming weeks large inventory builds.

Natural gas for delivery in July traded 1.13% lower at $2.886 per million British thermal units at 7:46 GMT, shifting in a daily range of $2.912 – $2.868. The contract slid 2.5% on Friday to $2.919, settling the week 4.9% lower and ending three straight weeks of gains.

Very active weather with showers and thunderstorms will continue across many regions of the US through the first week of June, NatGasWeather.com said, but temperatures will gradually increase as well, boosting demand for cooling. Cooler systems will still pressure readings in the northern US, but with none of them being exceptionally cold, this will spell the end of any real heating demand until the next fall/winter season.

Very warm temperatures will continue over the South and East this week, followed by a late-week cooling to the north-central US, including over Texas, that would ease cooling demand to some extent. The nationwide warm-up will continue as next week begins, with more regions of the country becoming warmer than usual, which would warrant stronger heating demand, although it is not anticipated to impact the markets that much as a series of above-average inventory builds extends through the next weeks.

The Energy Information Administration reported last Thursday that US natural gas stockpiles rose by 92 billion cubic feet in the week ended May 15th, below analysts’ projections for a 96-97-bcf gain, yet still above the five-year average build of 89 bcf. Total gas held in US storage hubs amounted to 1.989 trillion cubic feet, narrowing a deficit to the five-year average of 2.024 trillion to 1.7%, or 35 bcf, from 2.0% a week earlier. Supplies were at a surplus of 59.0% compared to a year earlier.

This Thursday’s report will likely reflect a larger gap to the average, as compared to last weeks data. Initial estimates point to a build of around 110 bcf during the week ended May 22nd, compared to the five-year average of 95 billion cubic feet, while supplies rose by 113 bcf during the comparable period a year earlier.

The report after, due out on June 4th, is also expected to show a larger-than-average stockpiles gain, with the five-year average build for the week ended May 29th pegged at 92 bcf, while supplies rose by 118 bcf a year earlier.

Readings

According to AccuWeather.com, temperatures in New York will peak at 81-84 degrees Fahrenheit through May 30th, compared to the average 73-75, before easing to the upper 70s the following week. Chicago will reach 79 degrees today, 6 above normal, and will peak at 82 degrees on May 28th.

Down South, readings in Texas City will max out at 85-88 degrees through May 30th, exceeding the average 85-86, before easing a few degrees afterwards. On the West Coast, the high in Los Angeles today and tomorrow will be 73 degrees, 2 below usual, followed by a warm-up into the low-mid 80s as of May 29th.

Pivot points

According to Binary Tribune’s daily analysis, July natural gas futures’ central pivot point stands at $2.950. In case the contract penetrates the first resistance level at $2.987 per million British thermal units, it will encounter next resistance at $3.055. If breached, upside movement may attempt to advance to $3.092 per mBtu.

If the energy source drops below its S1 level at $2.882 per mBtu, it will next see support at $2.845. In case the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.777 per mBtu.

In weekly terms, the central pivot point is at $2.994. The three key resistance levels are as follows: R1 – $3.075, R2 – $3.231, R3 – $3.312. The three key support levels are: S1 – $2.838, S2 – $2.757, S3 – $2.601.