Natural gas trading outlook: futures drop before EIA inventory report

Natural gas fell in early European trading on Thursday before data by the EIA allegedly shows a larger-than-average inventory build, while a cooling across the north-eastern US curbs demand for another day.

Natural gas for delivery in August traded 0.52% lower at $2.882 per million British thermal units at 07:50 GMT, shifting in a daily range of $2.896 – $2.873. The contract rose 0.5% on Wednesday to $2.897 per mBtu.

The Energy Information Administration is expected to report today a much leaner build compared to the one on July 16th due to last week’s widespread warmth and higher cooling demand, but it will likely still exceed the average enough to affect pricing. Analysts’ projections point to a build of 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.

The government agency said last week 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.

Cooler Northeast

The energy source has been swinging between gains and losses this week as investors weigh lower demand due to a cooler Midwest and Northeast against extended forecasts calling for the return of very warm to hot temperatures across almost the entire US this weekend through the end of the month.

A brief cooling of several degrees across the Great Lakes and Northeast will last for one more day 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.

Continued very warm to hot temperatures, particularly over the southern half of the country, 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 seven days ending 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.

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 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 after August 4th 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 25-27th will range between 83 and 86 degrees Fahrenheit, near the average 84, before rising a few degrees the next several 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 99-101 degrees through 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, 4 below usual, followed by a warm-up to the average or slightly above for the remainder of July.

Pivot points

According to Binary Tribune’s daily analysis, August natural gas futures’ central pivot point stands at $2.884. In case the contract penetrates the first resistance level at $2.928 per million British thermal units, it will encounter next resistance at $2.958. If breached, upside movement may attempt to advance to $3.002 per mBtu.

If the energy source drops below its S1 level at $2.854 per mBtu, it will next see support at $2.810. In case the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.780 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.