Natural gas trading outlook: futures little changed ahead of EIA data

Natural gas was steady in early European trading on Wednesday as investors weighed a short-term cooling across the north-eastern US and a larger-than-average inventory build to be reported on Thursday against an extended outlook for very warm conditions across almost the entire country.

Natural gas for delivery in August traded 0.10% lower at $2.879 per million British thermal units at 07:50 GMT, shifting in a daily range of $2.891 – $2.873. The contract rose 2.1% on Tuesday to $2.882, reversing Mondays 1.6% loss, and is up 0.2% for the week so far.

A brief cooling of several degrees across the Great Lakes and Northeast will continue through Thursday as weather systems with showers and thunderstorms track through, NatGasWeather.com said, keeping national natural gas demand at moderate levels. However, high pressure will be quick to rebuild during the weekend, leading to another round of very warm to hot temperatures in the upper 80s to 100s across almost the entire country that will boost demand back to high compared to normal. Meanwhile, the central and southern US will remain engulfed by uncomfortable conditions as highs are anchored in the mid 90s to 100s. 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 lower 100s. The Great Lakes and Northeast will also warm up above normal occasionally, but passing Canadian weather systems will bring some comfortable cooling at times. However, any cooler systems that enter the US will be confined mostly to the Northwest and Northeast, leaving the remaining portion of the country very warm to hot and driving very strong cooling demand.

As August begins, the established high pressure will have to battle arriving cooler Canadian weather systems to determine whether there will be a significant change in sentiment. A stronger weather system tracking around the northern periphery of hot US high pressure will likely shift the ridge into the western US briefly, NatGasWeather.com said, easing temperatures across the North and East. It will be of utmost importance to see whether the hot ridge will manage to push back around August 3rd into the north-eastern US or comfortable conditions will establish for a longer period.

Temperatures

According to AccuWeather.com, highs in New York on July 22-27th will range between 82 and 84 degrees Fahrenheit, near the average 84, before rising a few degrees the next few days, while Chicago will peak in the low-mid 80s for the rest of the month, near the usual 83-84.

Down South, temperatures in Houston will max out at the toasty 99-100 degrees between July 23rd and July 29th, compared to the average 92-93, followed by a drop to seasonal levels. On the West Coast, Los Angeles will peak at 80 degrees today and 79 degrees tomorrow, below the usual 84, before rising to seasonal through the end of the month.

Supplies

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 and the five-year average increase for the period of 71 bcf. This 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.

Last week’s widespread warmth and higher cooling demand will lead to a much leaner build for this Thursday’s EIA report, but it will still exceed the average enough to affect pricing. Analysts projections point 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 result in an even smaller build for next week’s report, with the July 30th reading expected to show an inventory gain of slightly over 50 bcf for the week ended July 24th. This compares 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 $2.866. In case the contract penetrates the first resistance level at $2.910 per million British thermal units, it will encounter next resistance at $2.938. If breached, upside movement may attempt to advance to $2.982 per mBtu.

If the energy source drops below its S1 level at $2.838 per mBtu, it will next see support at $2.794. In case the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.766 per mBtu.

In weekly terms, the central pivot point is at $2.864. The three key resistance levels are as follows: R1 – $2.940 R2 – $3.011, $3.087. The three key support levels are: S1 – $2.793, S2 – $2.717, S3 – $2.646.