Natural gas trading outlook: futures drop on active weather ahead of EIA data

Natural gas fell for a second day, paring earlier weekly gains, as cooler weather across the northern US curbed cooling demand, while next weeks developments remained unclear and todays EIA report is expected to print a below-average inventory gain.

Natural gas for delivery in September traded 1.22% lower at $2.764 per million British thermal units at 08:02 GMT, shifting in a daily range of $2.788-$2.759. The contract dropped 0.5% yesterday to $2.798 per mBtu, ending two days of gains, and is up 1.7% for the week so far.

The Energy Information Administration is expected to report today a build of 42 billion cubic feet for the week ended July 31st due to the tracked periods very-high-to-high national cooling demand. This compares to a five-year average gain of 53 bcf and the year-ago one of 83 bcf.

The government agency said 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 but above the five-year average increase of 48 bcf for the period. Total gas held in US storage hubs amounted to 2.880 trillion cubic feet, expanding a surplus over the five-year average of 2.795 trillion to 3.0% from 2.9% a week earlier.

However, cooler weather across key consumption regions of the US this week will lead back to an above-average inventory build for next weeks report. Hot high pressure continues to dominate much of the central and southern US, NatGasWeather.com said, but weather systems with showers and thunderstorms tracking across the Great Lakes, Northeast and Northwest will curb national cooling demand this week.

As a result, the August 13th report will likely show a build of about 55 bcf for the week ended August 7th, exceeding the average 48 bcf, albeit not by much, while supplies rose by 79 bcf a year ago. Meanwhile, Texas and the South remain the countrys hottest spot with highs in the upper 90s and low 100s, and will remain so for quite some time.

However, the hot dome of high pressure over Texas will begin to once again gradually expand late this weekend through next week, according to NatGasWeather.com, covering almost the entire country apart from the Northwest and Northeast. The ridge will attempt to fend off a Canadian weather system that will push into the northeastern US, a battle the outcome of which weather models still struggle to predict. Basically, weather sentiment will be determined by the high pressure domes ability to keep incoming Canadian systems confined to the countrys northeastern and northwestern corners as any deeper push into the inner US will lead to lighter demand on a national level.

Temperatures

According to AccuWeather.com, New York will see near-normal highs through August 15th, ranging between 82 and 86 degrees compared to the usual 82-83. Readings in Chicago will peak at 79-81 degrees the next five days, compared to the average 83, followed by a short lasting few-degree warm-up.

Down South, temperatures over Houston will remain quite uncomfortable as highs of 100-104 degrees last through August 14th, compared to the average 93, before dropping into the lower 90s for the rest of the month. To the West, Sacramento will reach 95 degrees today, 3 above normal, and highs will swing within the full range of the 90s, including low 100s at times, through August 20th.

Pivot points

According to Binary Tribune’s daily analysis, September natural gas futures’ central pivot point stands at $2.814. In case the contract penetrates the first resistance level at $2.847 per million British thermal units, it will encounter next resistance at $2.897. If breached, upside movement may attempt to advance to $2.930 per mBtu.

If the energy source drops below its S1 level at $2.764 per mBtu, it will next see support at $2.731. In case the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.681 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.