Natural gas trading outlook: futures extend drop ahead of March thaw

Natural gas fell on Monday after plunging more than 8% last week as forecasts called for one last week of widespread cold weather in the US before the entire country, apart from the North, warms up to near or above-normal around March 10th.

Natural gas for delivery in April traded 1.28% lower at $2.699 per million British thermal units at 11:12 GMT, shifting in a daily range of $2.727-$2.691. The contract rose 1.37% on Friday and settled the week 8.1% lower, snapping two consecutive weekly gains.

According to NatGasWeather.com, natural gas demand in the US will be high to very high through March 7th, with a neutral weather trend for the following two days, while the East and Central US turn warmer after March 10th.

The latest weather system that carried rain and snow across large parts of the US this weekend will exit off the Northeast Coast on Monday. Its departure will be followed by a push of mild temperatures over the Southeast and northward on Tuesday that will briefly drive readings above the average before another very strong Arctic blast pushes lows in the central US into the single digits and below zero on Wednesday. Temperatures of 15-35 degrees below usual will once again cover the entire country, apart from the West, but this cold outbreak will likely be the last of its kind for the winter heating season, paving the way for bearish weather sentiment after it retreats on Friday into Saturday.

The western US will see weather systems with rain and snow in the coming days, but dry and warm weather will be quick to return, with high pressure set to push readings above usual across the majority of the country this weekend.

As next week begins, the North will once again be hit by Canadian weather systems carrying rain, snow and below-average temperatures, NatGasWeather.com said, but as the week progresses, near or above-normal readings will cover the central and eastern US, significantly easing heating demand and lining up much thinner inventory withdrawals to come. The West will be warm and dry early next week, before Pacific weather systems bring some rains and cooling later in the peroid.

Supplies

The Energy Information Administration reported on Thursday that US natural gas stockpiles fell by 219 billion cubic feet in the seven days through February 20th, compared to the five-year average drop of 131 bcf, turning surpluses back into deficits. However, prices plunged as analysts had projected a drop of around 240 bcf.

Total gas held in US storage amounted to 1.938 trillion cubic feet as of last week, 1.5% below the five-year average inventory level of 1.968 trillion, compared to a 2.8% surplus a week earlier.

This weeks report is projected to show another 200+ bcf storage withdrawal as last weeks cold blasts across the majority of the US are taken into account, bringing deficits to 100-150 bcf. Stockpiles slid by 144 billion cubic feet during the comparable period a year ago.

Moreover, this weeks Arctic outbreak will result in one last inventory drop well above the average, to be reflected in EIAs March 12th report. The five-year average inventory decline for the week ending March 6th is 116 bcf, while stockpiles fell by 189 bcf a year ago. However, next weeks expected thaw, which will be factored in March 19ths inventory report, will end the recent string of larger-than-average withdrawals, setting up fairly bearish headwinds in the longer-term.

Temperatures

According to AccuWeather.com, readings in New York tomorrow will range between 30 and 31 degrees Fahrenheit, compared to the average 32-45, and will shift between 18 and 34 degrees on March 5th, before establishing near the seasonal starting March 8th. Temperatures in Chicago will range between 1 and 19 degrees on March 4th, compared to the seasonal 27-42, before rising to 25-39 degrees three days later and reaching the above-usual 54-56 on March 12-14th.

Down South, highs in Houston will reach 77 degrees tomorrow, 8 above normal, and will ease to 48-51 degrees on March 5-6th, before recovering to near-seasonal as of March 9th. On the West Coast, Los Angeles will range between 48 and 69 degrees on March 4th, compared to the average 50-70, with warmer-than-usual weather set to firmly establish through March 19th.

Pivot points

According to Binary Tribune’s daily analysis, April natural gas futures’ central pivot point stands at $2.721. In case the contract penetrates the first resistance level at $2.758 per million British thermal units, it will encounter next resistance $2.782. If breached, upside movement may attempt to advance to $2.819 per mBtu.

If the energy source drops below its first support level at $2.697 per mBtu, it will next see support at $2.660. If the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.636 per mBtu.

In weekly terms, the central pivot point is at $2.821. The three key resistance levels are as follows: R1 – $2.958, R2 – $3.182, R3 – $3.319. The three key support levels are: S1 – $2.597, S2 – $2.460, S3 – $2.236.