Natural gas trading outlook: futures extend gains on strong cooling demand

Natural gas rose early Wednesday, jumping for a third day, as very warm to hot conditions across almost the entire US spurred high cooling demand, while the EIA is expected to report tomorrow an inventory build near the average. Gains, however, were limited by forecasts for a comfortable cooling across the US Midwest and Northeast in early August.

Natural gas for delivery in September traded 0.60% higher at $2.833 per million British thermal units a 08:22 GMT, shifting in a daily range of $2.839-$2.823. The contract rose 1% on Tuesday to $2.816 after it added 0.5% on Monday.

Natural gas demand in the US will be very high compared to normal for one more day, NatGasWeather.com said, before easing to high through August 4th. Hot temperatures continue to engulf most of the country and will do so through the end of the week and early next, with highs in the upper 80s to lower 90s over the Great Lakes and Northeast, while readings across the central and southern US, including Texas, peak in the mid 90s to low 100s. Florida will cool a bit for several days due to a slow moving weather system with showers, while another one passes through the intermountain West.

As previously forecast, Canadian systems will arrive in the Midwest and northeastern US late this week and early next, spilling showers and seasonal temperatures, while the dome of high pressure shifts into the western US. This will result in the region warming up substantially, with highs over California reaching the 90s and 100s.

Strong high pressure will continue to dominate the western and southern regions of the country in the first week of August, NatGasWeather.com said, but the central US will enjoy near-normal conditions. The Great Lakes and East will be cooler than usual, especially after August 5th, as weather systems with showers penetrate deeper, resulting in a return to above-average inventory builds after the one next week comes below usual.

The focus going forward falls on how much ground the ridge of high pressure will cede as it battles cooler Canadian air and how much it manages to win back during the second week of August.

Temperatures

According to AccuWeather.com, New York will peak at the toasty 95 degrees on July 30th, 11 above normal, and highs will remain near 89-90 degrees through August 6th, followed by a cooling to the upper 70s and low 80s. Readings in Chicago will max out at 85-87 degrees the next couple of days, before dropping to the upper 70s and low 80s for most of the month.

Down South, Texas City will be reaching 94-95 degrees through August 4th, above the usual 90, followed by a drop to the more comfortable mid-upper 80s the next week. On the West Coast, Los Angeles will be peaking at the mid-upper 80s through August 6th, before easing to the upper 70s and low 80s afterwards.

Inventories

Tomorrows EIA report will probably print a smaller inventory gain compared to last Thursday due to the tracked period’s continued very warm to hot temperatures, particularly over the southern half of the country. Initial estimates point to a build of about 52 bcf for the seven days ending July 24th, compared to the five-year average increase of 48 bcf, while supplies rose by 88 bcf a year earlier.

Moreover, uncomfortable weather across most of the US this week and the accompanying very high to high cooling demand will lead to a smaller-than-average inventory build for the August 6th report, probably little over 40 bcf, compared to the five-year average gain for the week ended July 31st of 53 bcf and the year-ago one of 83 bcf.

It will then be up to Canadian weather systems’ ability to push deeper into the US to determine near-term sentiment. With weather models currently showing a fairly strong push of cooler air into the north-eastern US starting late this week, the August 13th report will likely once again show an inventory gain above the average, albeit not far off. Initial estimates point to a build of about 53 bcf for the week ended August 7th, compared to the average 48 bcf and the year-ago one of 79 bcf.

Pivot points

According to Binary Tribune’s daily analysis, September natural gas futures’ central pivot point stands at $2.813. In case the contract penetrates the first resistance level at $2.850 per million British thermal units, it will encounter next resistance at $2.885. If breached, upside movement may attempt to advance to $2.922 per mBtu.

If the energy source drops below its S1 level at $2.778 per mBtu, it will next see support at $2.741. In case the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.706 per mBtu.

In weekly terms, the central pivot point is at $2.835. The three key resistance levels are as follows: R1 – $2.897, R2 – $3.020, R3 – $3.082. The three key support levels are: S1 – $2.712, S2 – $2.650, S3 – $2.527.