Natural gas trading outlook: futures rebound on cold weather forecasts

Natural gas gained for the first time in three sessions on speculations that colder weather will induce higher heating demand but gains were limited by expectations for another thin weekly inventory decline.

On the New York Mercantile Exchange, natural gas for delivery in February jumped by 1.22% to $3.070 per million British thermal units by 9:52 GMT, having shifted in a daily range of $3.099-$3.052. The power-station fuel fell 1.27% on Friday to $3.033 per mBtu, settling the week 13.3% lower.

According to NatGasWeather.com, natural gas demand in the US will be high compared to normal through January 3rd, with a slightly colder weather trend for the next seven days.

The south-central US will be hit by a strong cold blast on Monday before it tracks east over the Great Lakes and Northeast in the following days. Readings across much of the US will plunge to below-freezing, with the countrys interior regions seeing the mercury drop to 15-30 degrees Fahrenheit below usual.

Apart from the aforementioned parts of the country, cold weather will also arrive to the South and West early this week, inducing significantly higher heating demand as northern Texas gets hit by temperatures in the single digits. California will also experience cold conditions, with overnight lows slipping into the 20s and 30s.

Next week, cold weather systems will bring frigid temperatures, rain and snow to the northern and central US, NatGasWeather.com reported, keeping national heating demand at high levels. A sharp difference between temperatures over the Northern US and the Southeast will evolve, as milder conditions are expected to settle in over the East Coast, while northern states remain in the grasp of cold weather.

Temperatures

According to AccuWeather.com, temperatures in New York will be below average on December 30th, ranging between 26 and 34 degrees, before warming up to 36-42 degrees on January 3rd, compared to the average of 28-39. Chicago will drop to as much as 8 degrees tomorrow, 11 beneath usual, and will range between 12 and 24 degrees on January 5th, below the average 19-32.

Down South, Houston will also experience colder-than-usual weather, with temperatures set to range between 38 and 58 degrees on December 30th, compared to the average of 45-63, before dropping to as much as 32 degrees on January 5th-6th. On the West Coast, Los Angeles will see readings slightly below usual tomorrow, ranging between 44 and 60 degrees, before peaking at 73 degrees on January 5th, 5 above normal.

Supplies

The Energy Information Administration reported on Wednesday that US natural gas stockpiles fell by 49 billion cubic feet in the week ended December 19th, falling well behind expectations for a withdrawal of 57-63 bcf. This also sharply differed from the year-ago drop of 193 bcf and the five-year average draw of 138 bcf, allowing to further gain on deficits.

Total gas held in US storage stood at 3.246 trillion cubic feet, narrowing the gap to the 3.415-trillion average to 4.9% from 7.3% a week earlier. Compared to a year ago, supplies expanded their surplus to 4.8% from 0.2% during the preceding week.

Moreover, due to last weeks mild weather, the report for the week ended December 26th, which will be released on Wednesday, is also expected to come in much leaner than the 114-bcf five-year-average withdrawal. However, colder weather systems which are set to spur high heating demand from this week on will likely result in much more significant inventory declines starting next week.

Pivot points

According to Binary Tribune’s daily analysis for Monday, January natural gas futures’ central pivot point stands at $3.026. In case the contract penetrates the first resistance level at $3.079 per million British thermal units, it will encounter next resistance at $3.151. If breached, upside movement may attempt to advance to $3.204 per mBtu.

If the energy source drops below its first support level at $2.954 per mBtu, it will next see support at $2.901. If the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.829 per mBtu.

In weekly terms, the central pivot point is at $3.110. The three key resistance levels are as follows: R1 – $3.248, R2 – $3.488, R3 – $3.626. The three key support levels are: S1 – $2.870, S2 – $2.732, S3 – $2.492.