Natural gas trading outlook: futures drop ahead of slight NE cooling

Natural gas fell on Monday before cooler weather systems impact the US Midwest and Northeast mid-week, but losses were capped by an expected return of above-average temperatures and a leaner inventory build to be reported on Thursday.

Natural gas for delivery in August traded 1.50% lower at $2.827 per million British thermal units at 08:42 GMT, shifting in a daily range between $2.851 and $2.823. The contract rose 0.6% on Friday to $2.870, closing the week 3.6% higher.

According to NatGasWeather.com, natural gas demand in the US will be very high compared to normal today, but will drop to moderate through Thursday, only to jump back to high once again afterwards.

Current very warm temperatures across the Great Lakes and Northeast will ease several degrees on Tuesday through Thursday as weather systems with showers and thunderstorms pass through, mostly affecting New England. This will ease national cooling demand to moderate from the current very high levels, but highs in the 90s will return during the weekend, bolstering demand for cooling.

Meanwhile, the central and southern US will remain in the grip of high pressure through the end of July, resulting in afternoon highs in the mid-90s to 100s. It will be most uncomfortable across the Southeast where the Heat Index will reach 105 – 113 degrees Fahrenheit to drive very strong cooling demand, NatGasWeather.com said. Pacific weather systems will keep the West Coast cooler, while the interior West remains very warm.

Next week, strong high pressure will continue to dominate the central and southern US, keeping highs in the mid-90s to 100s. The Great Lakes and Northeast will also warm up above normal at times, but passing Canadian weather systems will bring some comfortable cooling at times. In any case, any cooler systems that enter the US will be confined mostly to the Northwest and Northeast, essentially leaving the remaining portion of the country very warm to hot and driving strong cooling demand.

What should be of highest interest are weather developments in early August as data remain inconclusive on whether widespread high pressure will persist, or it could lose some ground, giving way to more seasonal temperatures over the East.

Readings

According to AccuWeather.com, the high in New York on July 21st will be 93 degrees Fahrenheit, 9 above usual, before dropping to 81-82 degrees on July 24-27th. Chicago will peak at 78-82 degrees the next three days, compared to the average 84, before jumping to mostly seasonal for the rest of the month.

Down South, Houston will reach 97 degrees today, 5 above normal, followed by a jump to 99-100 degrees between July 24th and July 29th. On the West Coast, Los Angeles will fail to exceed 79-81 degrees on July 21-24th, compared to the average 84, followed by a jump to seasonal and a few degrees higher through the end of July.

Inventories

The Energy Information Administration reported last Thursday that US natural gas stockpiles expanded by 99 billion cubic feet in the week ended July 10th, exceeding analysts’ median projection for a gain of 95 bcf. This was also well above the five-year average increase for the period of 71 bcf and brought the total gas held in US storage hubs to 2.767 trillion cubic feet, expanding a surplus over the five-year average of 2.694 trillion to 2.7% from 1.7% a week earlier. Supplies were also 30.9% above the year-ago stockpiles level of 2.114 trillion cubic feet.

However, last weeks widespread warmth and higher cooling demand will lead to a much leaner build for this Thursdays EIA report, with estimates pointing to a build of about 70 bcf for the week ended July 17th, compared to the five-year average gain of 53 bcf and the year-ago one of 92 bcf.

Continued very warm to hot temperatures will lead to an even smaller build for next weeks report, with the July 30th reading expected to show an inventory gain of about 50 bcf for the week ended July 24th. This compared to the five-year average stockpiles increase for the period of 48 bcf, while supplies rose by 88 bcf a year earlier.

Pivot points

According to Binary Tribune’s daily analysis, August natural gas futures’ central pivot point stands at $2.864. In case the contract penetrates the first resistance level at $2.903 per million British thermal units, it will encounter next resistance at $2.935. If breached, upside movement may attempt to advance to $2.974 per mBtu.

If the energy source drops below its S1 level at $2.832 per mBtu, it will next see support at $2.793. In case the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.761 per mBtu.

In weekly terms, the central pivot point is at $2.862. The three key resistance levels are as follows: R1 – $2.990, R2 – $3.111, R3 – $3.239. The three key support levels are: S1 – $2.741, S2 – $2.613, S3 – $2.492.