Natural gas trading outlook: futures extend drop ahead of EIA stockpiles report

Natural gas fell for a second session before the EIA reports on Thursday that US natural gas stockpiles likely rose above the five-year average last week. However, cold weather gripping the eastern, northern and central US kept losses limited.

Natural gas for delivery in March slid 0.25% to $2.752 per million British thermal units by 9:36 GMT, having shifted in a daily range of $2.785-$2.732. The contract slid 1.6% the prior session to $2.759 after it gained 8.6% last week.

According to NatGasWeather.com, natural gas in the US through February 24th will be high to very high, with the west set to turn cooler over the following seven days, while the East becomes milder.

The eastern US remains in the grip of a strong polar blast that has pushed into the Southeast as well, bringing widespread lows in the single digits and below zero as south as the Tennessee Valley. This will induce very strong heating demand through Friday, NatGasWeather.com said. Meanwhile, widespread warmth across the West will help break records as highs range between the upper 60s and lower 80s.

Additional cold weather systems will arrive to the Midwest and Northeast this weekend, reintroducing sub-freezing temperatures to the Southeast as well, and will continue to track through during next week, keeping temperatures below the average and inducing strong national heating demand.

The south-central US will experience some cold blasts next week, but will remain overall near the normal as the truly frigid air remains confined to the Northeast and Great Lakes where lows will be between 15 and 30 degrees below normal. The West will continue to enjoy near or warmer-than-usual weather through the end of the month.

A notable change in weather patterns is likely to come in early March when cold blasts across the East may ease, paving the way for the return of mild weather, while Pacific systems hit the West with cooler conditions.

EIA report

The Energy Information Administration is likely to report on Thursday that US natural gas inventories fell by 100-110 bcf in the week ended February 13th, compared to the five-year average decline of 180 bcf. If confirmed, this would bring stockpiles to 60-70 bcf above average levels, the first surplus since 2013. Stocks slid by 247 bcf during the comparable period a year earlier.

However, next weeks EIA report is expected to show an inventory decline well above the normal as this weeks cold outbreak across the eastern, northern and parts of the central US spur very strong heating demand. If, as forecast, reinforcing cold blasts follow this weekend and next week, this would line up another significant inventory decline for the following week as average withdrawals fall steeply, bearing the potential to bring inventories back to ~100 bcf deficits through the end of the month.

The EIA reported last Thursday that US natural gas stockpiles fell by 160 billion cubic feet in the week ended February 6th. Total gas held in US storage hubs amounted to 2.268 trillion cubic feet, narrowing the deficit to the five-year average of 2.279 trillion to 0.5% from 1.2% a week earlier. The surplus to the year-ago storage of 1.726 trillion cubic feet expanded to 31.4% from 23.9% during the preceding period.

Temperatures

According to AccuWeather.com, readings in New York on February 20th will range between 8 and 19 degrees Fahrenheit, compared to the average 30-43, and will shift between 15 and 32 degrees three days later. Highs will firmly establish above the freezing point after February 28th. Chicago will see temperatures bottom at -4 degrees today and tomorrow, well below the seasonal 22-23, while highs will fail to find stable ground above the freezing point before February 28th as well.

Down South, Houston will range between 65 and 74 degrees on February 20th, compared to the average 50-67, and apart from the February 23rd-26th period, will experience normal or slightly cooler readings through March 4th. On the West Coast, Los Angeles will enjoy mostly seasonal and slightly warmer weather throughout February, with readings set to range tomorrow between 54 and 71 degrees, compared to the average 50-69.

Pivot points

According to Binary Tribune’s daily analysis, March natural gas futures’ central pivot point stands at $2.784. In case the contract penetrates the first resistance level at $2.871 per million British thermal units, it will encounter next resistance at $2.983. If breached, upside movement may attempt to advance to $3.070 per mBtu.

If the energy source drops below its first support level at $2.672 per mBtu, it will next see support at $2.585. If the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.473 per mBtu.

In weekly terms, the central pivot point is at $2.753. The three key resistance levels are as follows: R1 – $2.934, R2 – $3.065, R3 – $3.246. The three key support levels are: S1 – $2.622, S2 – $2.441, S3 – $2.310.