Natural gas trading outlook: futures advance on hot southern US

Natural gas rose on Monday, extending last weeks advance, as the southern US braced for the highest cooling demand this year amid very hot temperatures, although gains were limited by near-normal weather across the countrys northern regions.

Natural gas for delivery in September traded 1.32% higher at $2.835 per million British thermal units at 08:30 GMT, shifting in a daily range $2.847 – $2.828. The contract slid 0.53% on Friday to $2.798, closing the week 3% higher.

Very warm to hot temperatures will continue to dominate most of the central and southern US this week, keeping regional natural gas demand at high to very high levels through August 15th. Texas and the South will remain nations hottest spot as highs are anchored in the upper 90s to mid 100s, which will drive the strongest regional cooling demand for the year on Monday and Tuesday, NatGasWeather.com said.

However, weather systems with showers and thunderstorms tracking across the Northeast, Great Lakes and Northwest will keep temperatures slightly below usual, keeping cooling demand only at moderate levels and easing overall national demand.

Ongoing battles between the hot dome of high pressure and additional cooler Canadian weather systems trying to push the northern US after this weekend will be of main interest as weather models still fail to definitively predict a clear winner. The southern Great Lakes will occasionally get quite warm next week, but cooler temperatures might continue to revisit the region as the battle with the ridge of high pressure continues, NatGasWeather.com said.

Regardless of how the weather pattern develops over the northern half of the country, the western, southern and eastern US will continue to be very warm to hot next week, including over Texas and California, which will drive very strong local cooling demand, supporting prices in the near term.

The Energy Information Administration said last Thursday that US natural gas inventories rose by 32 billion cubic feet in the week ended July 31st, reflecting very warm weather across almost the entire country during the tracked period. The build was below analysts’ projections for a 42 bcf gain and the five-year average build for the period of 53 bcf. Total gas held in US storage hubs amounted to 2.912 trillion cubic feet, narrowing a surplus over the five-year average of 2.848 trillion to 2.2% from 3.0% a week earlier.

This weeks build, however, will be much higher as cooler temperatures across the northern US last week are factored in. Thursdays report is expected to show a build of 60 bcf, or slightly higher, exceeding the average 48 bcf for the week ended August 7th, while supplies rose by 79 bcf a year ago.

The following report, due out on August 20th, will likely show a slightly higher inventory gain due to cooler conditions across the North, but very strong cooling demand over the southern half of the US will keep positive inventory changes near the five-year average. Next weeks data will likely show a build of about 65 bcf for the week ended August 14th, compared to the five-year average stockpiles increase of 54 bcf, while supplies rose by 86 bcf a year earlier.

Temperatures

According to AccuWeather.com, New York will see highs slightly below the average of 83 degrees through August 14th, followed by a jump to the upper 80s the following week. Readings in Chicago will peak at 77 degrees on August 11-12th, compared to the average 82-83, followed by a warm-up into the mid 80s the next six days.

Down South, highs over Houston will remain anchored at 100-104 degrees through August 14th, above the usual 93, before gradually dropping to the low 90s for the rest of the month. On the West Coast, Los Angeles will peak at 78 degrees today and 82 degrees tomorrow, followed by a jump to the upper 80s and lower 90s through August 15th.

Pivot points

According to Binary Tribune’s daily analysis, September natural gas futures’ central pivot point stands at $2.794. In case the contract penetrates the first resistance level at $2.828 per million British thermal units, it will encounter next resistance at $2.857. If breached, upside movement may attempt to advance to $2.891 per mBtu.

If the energy source drops below its S1 level at $2.765 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 $2.702 per mBtu.

In weekly terms, the central pivot point is at $2.789. The three key resistance levels are as follows: R1 – $2.872, R2 – $2.945, R3 – $3.028. The three key support levels are: S1 – $2.716, S2 – $2.633, S3 – $2.560.