Natural gas trading outlook: futures drop on US thaw

Natural gas plunged on Monday as warm temperatures across the US continued to gain ground, significantly easing heating demand.

Natural gas for delivery in April traded 3.59% lower at $2.737 per million British thermal units at 9:33 GMT, shifting in a daily range of $2.778-$2.727. The contract fell 0.07% on Friday to settle the week 3.8% higher at $2.839 per mBtu.

According to NatGasWeather.com, natural gas demand in the US will be moderate compared to normal through March 14th, with a neutral weather trend over the next seven days, apart from the Great Lakes and Northeast where readings will turn slightly cooler.

Warmer weather continued to spread across the US as the last in a series of Arctic blasts waned, leaving only the Northeast and Great Lakes with cooler-than-normal temperatures. A warm-up will follow for these regions as well over the next few days as high pressure builds, but a Canadian cold front will bring back slightly below-seasonal temperatures on the table on Thursday into Friday.

A slow moving weather system carrying showers over Texas will drift into the Southeast the next few days, NatGasWeather.com said, before reaching the Northeast in the weekend with rains, snow and ice. The western and central US, apart from Texas, will remain mostly dry and warmer than usual.

Weather systems tracking across southern Canada late in the weekend and early next week will tap cooler readings into the Northeast and Great Lakes. However, mild weather will dominate the rest of the US, with the west and central regions of the country set to be warmer than usual, while the South and East remain near or slightly cooler than normal.

Supplies

This Thursday’s EIA inventory report will show another withdrawal well above the average, around -170 bcf, as last week’s Arctic outbreak is factored in, bringing deficits to around -200 bcf. The five-year average inventory decline for the week ending March 6th is 116 billion cubic feet, while stockpiles fell by 189 bcf a year ago.

However, this past weekend and the current week’s thaw will end the recent string of hefty inventory declines, causing a much thinner withdrawal for the March 19th report. That decline will likely still be above the average as cooler conditions across the North induce enough heating demand, while average withdrawals drop steeply as the winter draws to an end. The five-year average draw for the week ending March 13th is 45 bcf, while stockpiles slid by 69 bcf a year ago.

The Energy Information Administration reported last Thursday that US natural gas stockpiles fell by 228 billion cubic feet in the seven days through February 27th, in line with analysts’ expectations for a decline in the range of 222-235 bcf. This compared to the five-year average withdrawal of 115 bcf and the year-ago drop of 144 bcf.

Total gas held in US storage hubs amounted to 1.710 trillion cubic feet last week, expanding a deficit to the five-year average inventory level of 1.853 trillion to 7.7%, or -143 bcf, from 1.5% a week earlier.

Temperatures

According to AccuWeather.com, readings in New York will range between 42 and 48 degrees tomorrow, compared to the average 33-48, and are expected to remain near or slightly cooler than seasonal through March 20th. Chicago will be near-normal on March 10th as readings range between 35 and 47 degrees, before peaking at 49 degrees three days later, 3 above average.

Down South, Houston will experience slightly cooler weather than normal through March 13th as highs range between 66 and 69 degrees, compared to the average 71-72, before establishing in the 70s through March 22nd. On the West Coast, the high in Los Angeles tomorrow will be 84 degrees Fahrenheit, 14 higher than usual, with the mercury set to peak in the upper 70s to mid 80s through March 23rd.

Pivot points

According to Binary Tribune’s daily analysis, April natural gas futures’ central pivot point stands at $2.831. In case the contract penetrates the first resistance level at $2.878 per million British thermal units, it will encounter next resistance $2.918. If breached, upside movement may attempt to advance to $2.965 per mBtu.

If the energy source drops below its first support level at $2.791 per mBtu, it will next see support at $2.744. If the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.704 per mBtu.

In weekly terms, the central pivot point is at $2.783. The three key resistance levels are as follows: R1 – $2.926, R2 – $3.012, R3 – $3.155. The three key support levels are: S1 – $2.697, S2 – $2.554, S3 – $2.468.