Natural gas trading outlook: futures rise on hot weather

Natural gas rose in early European trading on Monday after two days of sizable losses as investors weighed hot weather across the west, central and southern US, coupled with an expected below-average inventory build, against a cooling across the countrys north-eastern regions.

Natural gas for delivery in September traded 1.47% higher at $2.756 per million British thermal units at 08:42 GMT, shifting in a daily range of $2.758-$2.719. The contract slid 1.9% on Friday to $2.716 per mBtu, closing the week 2.1% lower following another 3.4% decline the previous week.

Natural gas demand in the US will be overall lower this week, compared to last, and will vary across different regions of the US. Hot high pressure will continue to dominate much of the western, central and southern US, spurring high cooling demand, compared to normal. However, weather systems with showers and thunderstorms will track across the Great Lakes and Northeast as the week progresses, carrying below-normal temperatures that would limit local cooling demand to moderate-low. The Northwest will also be cooler due to passing weather systems, but the Plains and Southwest will remain hot.

Very warm to hot weather will continue to engulf the western, southern and central US next week, and more importantly, the ridge of high pressure anchored over Texas could easily try to regain some of the lost ground to cooler Canadian air, which could turn the regional pattern after August 10th less bearish. Basically, temperatures across the Midwest and Northeast will remain cooler through early next week, but with a fairly significant chance of warming up as the week progresses.

Temperatures

According to AccuWeather.com, New York will experience highs of 90 degrees Fahrenheit on August 4-5th and 87 degrees on August 6th, compared to the usual 84, before dropping down to the upper 70s and low 80s the following five days. Temperatures in Chicago will peak at 82 degrees today and tomorrow, 1 below usual, followed by a slide into the 70s over the next ten days.

Down South, Houston will see readings max out at 98-101 degrees through August 16th, compared to the average 93, before dropping into the the upper 80s and lower 90s afterwards. To the West, Los Angeles will peak at 84-87 degrees the next three days, slightly above the usual 84, followed by a decline to the upper 70s and 80 through August 11th.

Inventories

The Energy Information Administration reported last Thursday that US natural gas inventories rose by 52 billion cubic feet in the week ended July 24th, slightly below analysts median estimate of a 54-bcf gain. This, however, was still above the five-year average increase of 48 bcf for the period, while supplies rose by 88 bcf a year earlier.

Total gas held in US storage hubs amounted to 2.880 trillion cubic feet, expanding a surplus to the five-year average of 2.795 trillion to 3.0% from 2.9% a week earlier. Supplies were also 25.5% above the year-ago inventory level of 2.294 trillion cubic feet.

This Thursdays report will most likely show a build below the average due to the tracked periods high-to-very-high natural gas demand. Early estimates call for an inventory increase of about 43 bcf during the seven days ended July 31st, compared to the five-year average build of 53 bcf and the year-ago one of 83 bcf.

However, this weeks cooling across the Midwest and Northeast will lead to another above-average inventory gain to follow, albeit not by much. The August 13th report will likely show a build of about 50 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 $2.737. In case the contract penetrates the first resistance level at $2.767 per million British thermal units, it will encounter next resistance at $2.819. If breached, upside movement may attempt to advance to $2.849 per mBtu.

If the energy source drops below its S1 level at $2.685 per mBtu, it will next see support at $2.655. In case the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.603 per mBtu.

In weekly terms, the central pivot point is at $2.772. The three key resistance levels are as follows: R1 – $2.839, R2 – $2.961, R3 – $3.028. The three key support levels are: S1 – $2.650, S2 – $2.583, S3 – $2.461.