Natural gas trading outlook: futures extend drop on cooler weather

Natural gas slid in early European trading on Monday, extending Fridays sizable losses, as another cool system passes through key US consuming regions this week and curbs cooling demand.

Natural gas for delivery in October traded 1.7% lower at $2.652 per million British thermal units at 08:25 GMT, having earlier dropped to $2.651. The contract tumbled 3.2% on Friday to $2.697, settling the week 4.9% lower.

Natural gas demand in the US will be moderate compared to normal this week, NatGasWeather.com said, as another unseasonably strong weather system with showers, thunderstorms and cooler-than-normal temperatures pushes across the Great Lakes and eastern US the next several days. This will result in comfortable highs in the upper 60s and lower 70s over the key consuming areas of the Midwest and Northeast, including Chicago, while cooler readings are also expected to briefly push into the southeastern US as the week progresses.

Still, very warm to hot weather with highs in the upper 80s to 100s will continue to dominate the western and southern US, including Texas, and as the aforementioned weather system exits the US late in the week, high pressure will recover ground over the eastern US.

High pressure will maintain its grip of the southern, central and eastern US next week, although the West will be cooler as Pacific systems push inland. However, the question arises whether it will be hot enough to drop inventory builds below normal and for how long will the heat last. Basically, temperatures are expected to get warm enough to warrant high cooling demand, but there are flaws in the ridge of high pressure that could quickly turn mid-term weather sentiment to bearish, according to NatGasWeather.com.

Temperatures

According to AccuWeather.com, New York will see highs of 84-87 degrees Fahrenheit through the end of the month, compared to the usual 80-82, while Chicago will max out in the low-mid 70s, well below the average of 80-82.

Down South, Houston will peak at 98 degrees today and 96 tomorrow, compared to the normal 92, before dropping into the low 90s for the rest of the month. To the West, Los Angeles will reach 91 degrees on August 27-28th, 6 above usual, followed by a retreat to the mid 80s.

Inventories

The Energy Information Administration printed a bullish inventory number last Thursday due to maintenance-related tighter imports from Canada, while hot temperatures across Texas led to a draw of 1 bcf in the producing region during the tracked period. US natural gas inventories rose by 53 billion cubic feet in the week ended August 14th, below analysts’ median estimate of 58 bcf and the five-year average inventory build of 54 bcf. This brought the total gas held in US storage hubs to 3.030 trillion cubic feet, slightly narrowing a deficit to the five-year average of 2.950 trillion to 2.7% from 2.8% a week earlier.

This week’s inventory report will likely bring another near-normal build as very warm to hot temperatures across most of the US early last week offset a cooler system that tracked across the northern US. Supplies are projected to have risen by about 60 bcf during the week ended August 21st, below the five-year average increase of 61 bcf and the year-ago one of 77 bcf.

Next weeks report, however, is expected to come in above the average due to this weeks cool weather across the Midwest and Northeast. Early estimates point to a build of little over 70 bcf for the seven days ended August 28th, compared to the five-year average gain of 60 bcf and a 79-bcf increase a year earlier.

Pivot points

According to Binary Tribune’s daily analysis, October natural gas futures’ central pivot point stands at $2.728. In case the contract penetrates the first resistance level at $2.761 per million British thermal units, it will encounter next resistance at $2.826. If breached, upside movement may attempt to advance to $2.859 per mBtu.

If the energy source drops below its S1 level at $2.663 per mBtu, it will next see support at $2.630. In case the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.565 per mBtu.

In weekly terms, the central pivot point is at $2.738. The three key resistance levels are as follows: R1 – $2.783, R2 – $2.868, R3 – $2.913. The three key support levels are: S1 – $2.653, S2 – $2.608, S3 – $2.523.