Natural gas trading outlook: futures drop on cooler east-central US

Natural gas fell on Monday, extending last weeks decline, amid forecasts for somewhat cooler weather across the eastern and central US, paving the way for a slightly larger-than-usual inventory build to be reported next week.

Natural gas for delivery in August traded 0.72% lower at $2.750 per million British thermal units at 08:25 GMT, shifting in a daily range of $2.760 – $2.735. The contract slid 3.4% on Friday to $2.770, settling the 5-day period 2.5% lower after two weeks of gains.

According to NatGasWeather.com, natural gas demand in the US will remain moderate compared to normal through July 5th, with weather conditions across the country set to differ over the following seven days, inducing varying levels of local cooling demand.

Cooler patterns will engulf most of the US this week. Several weather systems will track across the eastern and central US, carrying showers, thunderstorms and somewhat cooler-than-normal temperatures. The South and Southeast have also cooled compared to last week, but will again warm up in the mid 90s as the week progresses. The West will remain hot with common highs in the upper 90s and 100s, except for the immediate Pacific coast.

What is of biggest interest are the weather patterns going into the second week of July, with data still being inconclusive on whether very warm conditions over the West and South will manage to push into the northern US or, alternatively, additional Canadian weather systems will arrive to the north-central US and fan bearish sentiment. In any way, the Southeast will be very warm next week, and the West is expected to remain hot, spurring high natural gas demand for cooling.

Readings

According to AccuWeather.com, temperatures in New York on July 2nd will peak at 84 degrees Fahrenheit, 1 above usual, and at 85 degrees on July 8th. Chicago will fail to exceed 71 degrees on July 1st, 13 below normal, but highs are expected to reach the lower 80s as of July 5th.

Down South, Houston will peak at 92 degrees on July 2nd, 1 above the average, and will remain near seasonal levels through the second week of the month. On the West Coast, readings in Sacramento will max out at 106 degrees on July 1st, 16 above usual, before easing back to the mid-upper 90s afterwards.

Supplies

The Energy Information Administration reported last Thursday that US natural gas stockpiles rose by 75 billion cubic feet in the week ended June 19th, 2 bcf below analysts’ consensus estimate and well beneath the five-year average gain of 86 bcf. Total gas held in US storage hubs amounted to 2.508 trillion cubic feet, narrowing a surplus to the five-year average stockpiles of 2.473 trillion to 1.4%, or 35 bcf, from 1.9% a week earlier. Inventories were also at a surplus of 38.3% to the year-ago supplies of 1.813 trillion cubic feet, down from 42.9% during the previous week.

Initial estimates for this Thursday’s report point to a stockpiles gain of around 70 bcf for the seven days ended June 26th, below the average of 75 bcf and a gain of 102 bcf during the comparable period last year, due to very high natural gas demand through most of the tracked period.

The report after, due out on July 9th, will reflect this weeks comfortable weather across the east-central US, leading to an inventory build exceeding the average, but not by much. Early estimates call for a build of slightly over 80 bcf in the seven days ended July 3rd, compared to the five-year average inventory gain of 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 $2.800. In case the contract penetrates the first resistance level at $2.836 per million British thermal units, it will encounter next resistance at $2.901. If breached, upside movement may attempt to advance to $2.937 per mBtu.

If the energy source drops below its S1 level at $2.735 per mBtu, it will next see support at $2.699. In case the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.634 per mBtu.

In weekly terms, the central pivot point is at $2.791. The three key resistance levels are as follows: R1 – $2.848, R2 – $2.927, R3 – $2.984. The three key support levels are: S1 – $2.712, S2 – $2.655, S3 – $2.576.