Natural gas trading outlook: futures extend decline on active US weather, inventories

Natural gas slid for a seventh straight day on Monday following a surprisingly bearish inventory report on Thursday and amid active weather that would keep varying conditions in different parts of the US in force.

Natural gas for delivery in July traded 0.45% lower at $2.630 per million British thermal units at 07:57 GMT, holding in a daily range of $2.634 – $2.603. The contract fell 2.4% on Friday to $2.642 per mBtu, settling the week 9.5% lower following a 4.9% drop the week before.

According to NatGasWeather.com, natural gas demand will be low across the northern US through June 6th, while being moderate over the South, with an overall neutral weather trend for the following seven days.

A cool weather system continues to sweep across the eastern US, carrying heavy showers and thunderstorms and pushing highs over the Great Lakes and Ohio Valley into the 60s, and 50s near the Canadian border. Some cooling will also spill into the southeastern regions of the country, but temperatures there will remain overall quite warm. As the cool blast dissipates early this week, high pressure will strengthen, pushing readings higher across most of the US. The North will warm up into the 70s and 80s, removing the need for heating and spurring light cooling demand, while Texas, Florida and much of the South reach the upper 80s and 90s by Thursday, driving the nations strongest cooling demand. The West will see somewhat cooler temperatures due to a weather system tracking inland.

Very warm conditions will persist through the weekend, especially across Texas, Florida and the Gulf Coast where the mercury will reach 95-100 degrees, NatGasWeather.com said. Active weather will continue next week as well, with widespread thunderstorms and showers. The southern US will remain subjected to very warm to hot temperatures, especially over the Southeast, while the North continues to be impacted by cooler Canadian weather systems, keeping temperatures comfortable, and conditions across the West remain mixed.

Readings

According to AccuWeather.com, highs in New York on June 1-2nd will be 66-67 degrees, 9 below usual, before recovering to the mid and upper 70s afterwards. Chicago will fail to exceed 63 degrees today, 12 below normal, but will warm up to as much as 80 degrees on June 4th.

Down South, highs in Houston will be in the mid to upper 80s through June 5th, compared to the average 89, before rising to 90-91 degrees the next five days. On the West Coast, Los Angeles will peak at 74-75 degrees through June 9th, near the average 75-76, followed by a warm-up into the low 80s.

Inventories

The Energy Information Administration reported last Thursday that natural gas inventories in the US rose by 112 billion cubic feet in the week ended May 22nd, sharply exceeding analysts’ median estimate for a 99-bcf gain. Total gas held in US storage hubs amounted to 2.101 trillion cubic feet, narrowing a deficit to the five-year average of 2.119 trillion to 0.8%, or 18 bcf, from 1.7% a week earlier. Stockpiles were also at a surplus of 54.0% to the year-ago level of 1.364 trillion cubic feet.

This week’s supplies report, due out on June 4th, is expected to show another larger-than-average inventory 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. Early estimates call for an inventory increase of 120 – 125 billion cubic feet, which, if confirmed, would flip deficits to the average into a surplus.

The report after, due out on June 11th will also reflect a larger-than-average build. The five-year average inventory gain for the week ended June 5th is 89 bcf, while stockpiles rose by 109 bcf a year earlier.

Pivot points

According to Binary Tribune’s daily analysis, July natural gas futures’ central pivot point stands at $2.666. In case the contract penetrates the first resistance level at $2.698 per million British thermal units, it will encounter next resistance at $2.755. If breached, upside movement may attempt to advance to $2.787 per mBtu.

If the energy source drops below its S1 level at $2.609 per mBtu, it will next see support at $2.577. In case the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.520 per mBtu.

In weekly terms, the central pivot point is at $2.730. The three key resistance levels are as follows: R1 – $2.827, R2 – $3.012, R3 – $3.109. The three key support levels are: S1 – $2.545, S2 – $2.448, S3 – $2.263.