Natural gas trading outlook: futures steady with weather in focus

Natural gas was little changed on Wednesday following two days of losses as weather forecasts saw no significant overnight changes, calling for a couple of very warm days across the US, followed by the arrival of cooler Canadian weather systems that would significantly ease cooling demand.

Natural gas for delivery in August traded at $2.742 per million British thermal units at 08:02 GMT, down 0.15% on the day, having shifted in a daily range of $2.753 – $2.738. The contract slid 0.6% yesterday following a 2.75% drop on Monday.

Natural gas demand in the US will be high compared to normal for one more day before easing to moderate through June 30th, according to NatGasWeather.com. A weather system with showers and thunderstorms will track out of the Northeast today, with a similar one set to develop over the Midwest on Thursday and track eastward as well. The rest of the US will remain engulfed by very warm to hot temperatures with widespread highs in the 90s and locally 100s, leading to a smaller-than-average inventory build to be reported next week.

However, high pressure will lose dominance to cooler Canadian weather systems on Friday going into next week. This will result in considerably lower temperatures across the Midwest and East, while cooler air also spills into the Southeast to ease hot conditions of the past few weeks. The West will continue to experience widespread highs in the 90s and 100s, NatGasWeather.com said, remaining a source for strong cooling demand.

Additional Canadian weather systems are anticipated to track across the central and eastern US in the last week of June going into July, carrying below-normal temperatures, showers and thunderstorms. Florida and portions of the Southeast Coast will be the only regions of the eastern half of the US that will be warmer than usual, significantly easing cooling demand compared to the current week, while the West remains very warm to hot. High pressure might try to strengthen again over the East and North as the first week of July ends, but it remains yet unclear how successful that push would be.

Readings

According to AccuWeather.com, temperatures in New York will peak at 83-84 degrees Fahrenheit today and tomorrow, compared to the average 82, before easing into the 70s through July 1st. The high in Chicago today will be 78 degrees, 4 below usual, followed by a drop to 68 degrees two days later.

Down South, readings in Texas City will max out at 87-90 degrees through July 2nd, compared to the average 89, followed by a five-day cooling to the low-mid 80s. To the West, Sacramento will peak at 103 degrees tomorrow, 14 above normal, with highs set to remain in the upper 90s and low 100s through July 9th.

Inventories

This week’s inventory report is expected to come in below the average as lower supply due to maintenance offset a cooling that tropical storm Bill brought last week and Canadian weather systems that tracked across the North. Projections point to a build of around 80 bcf for the week ended June 19th, compared to the five-year average gain of 86 bcf and the year-ago one of 110 bcf.

The following report, due out on July 2nd, will probably reflect a smaller-than-average inventory increase as well due to very high cooling demand through most of the tracked period. The EIA is expected to report a build of about 73 bcf for the seven days ended June 26th, compared to the average of 75 bcf and a gain of 102 bcf during last year’s comparable period.

The build after, however, will most likely rise back to well above the average as cooler weather across the eastern half of the US starting late this week and lasting through at least July 4th gets factored in, while supply continues to recover. The five-year average build for the week ended July 3rd is 75 bcf, while stockpiles jumped by 94 bcf a year earlier.

Pivot points

According to Binary Tribune’s daily analysis, August natural gas futures’ central pivot point stands at $2.768. In case the contract penetrates the first resistance level at $2.803 per million British thermal units, it will encounter next resistance at $2.859. If breached, upside movement may attempt to advance to $2.894 per mBtu.

If the energy source drops below its S1 level at $2.712 per mBtu, it will next see support at $2.677. In case the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.621 per mBtu.

In weekly terms, the central pivot point is at $2.859. The three key resistance levels are as follows: R1 – $2.958, R2 – $3.075, R3 – $3.174. The three key support levels are: S1 – $2.742, S2 – $2.643, S3 – $2.526.