Natural gas trading outlook: futures swing ahead of EIA data

Natural gas fell on Wednesday after two days of gains as active weather across the US continued and investors looked ahead at government supply data that is expected to show inventories flipping into a surplus compared to the average.

Natural gas for delivery in July traded 0.41% lower at $2.687 per million British thermal units at 08:00 GMT, shifting in a daily range between $2.706 and $2.683. The contract rose for a second day on Tuesday by 1.85% to $2.698 per mBtu, after falling 14.4% the previous two weeks.

Natural gas demand across the northern US will be low compared to normal through June 9th, according to NatGasWeather.com, while being moderate over the South. A cool weather system that had recently pushed temperatures down across the East will exit the East Coast today following another around of showers and thunderstorms over the Southeast.

As the cool blast dissipates, high pressure will strengthen, pushing readings up across most of the US. Texas, Florida and much of the South will reach the upper 80s and 90s by Thursday, driving the nation’s strongest cooling demand. The West, except for the Southwest, will be somewhat cooler as a weather system tracks inland and brings near-normal readings.

Very warm conditions will persist through the weekend, especially across Texas, Florida and the Gulf Coast where the mercury will reach the low 100s, NatGasWeather.com said. The North will warm into the 70s and 80s, removing the need for heating and spurring light cooling demand. Active weather will continue next week as well, with widespread thunderstorms and showers. The eastern and southern US will remain subjected to hot temperatures, while the countrys north-central regions continue to be impacted by cooler Canadian weather systems that will keep temperatures comfortable, and conditions across the West remain mixed.

Readings

According to AccuWeather.com, the high in New York on June 4th will be 63 degrees Fahrenheit, 13 below usual, before rising to the mid 70s to lower 80s afterwards. Chicago will hover on both sides of the average through June 13th, keeping in a range of 5-6 degrees around the usual 76-79 degrees for the period.

Down South, Houston will peak at 88-91 degrees the next couple of weeks, matching the average. On the West Coast, highs in Los Angeles will be at 72-73 degrees through June 6th, followed by a warm-up into the upper 70s.

Inventories

Tomorrow’s stockpiles report by the Energy Information Administration is expected to show another much larger than usual 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 government agency 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.

The report after, due out on June 11th, will also reflect a much larger than normal 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 $2.673. In case the contract penetrates the first resistance level at $2.748 per million British thermal units, it will encounter next resistance at $2.797. If breached, upside movement may attempt to advance to $2.872 per mBtu.

If the energy source drops below its S1 level at $2.624 per mBtu, it will next see support at $2.549. In case the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.500 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.