Natural gas trading outlook: futures set for third weekly gain on EIA data

Natural gas held near the $3 mark on Friday after the Energy Information Administration reported a smaller-than-expected inventory gain on Thursday, although upward movement was limited by forecasts for comfortable temperatures across the US.

Natural gas for delivery in June traded 0.27% lower at $3.000 per million British thermal units at 7:45 GMT, shifting in a daily range of $3.017-$2.995. The contract jumped 2.5% on Thursday to $3.008, the highest close since January 16th.

The Energy Information Administration reported yesterday that US natural gas inventories rose by 111 billion cubic feet in the week ended May 8th, below analysts consensus forecast of 116 bcf. Still, the reading was well above the five-year average gain for the week of 82 bcf and the year-ago increase of 101 bcf. Despite the comfortable readings last week, analysts attributed the surprisingly low build to a drop in production due to maintenance, as well as stronger exports.

Total gas held in US storage hubs amounted to 1.897 trillion cubic feet, narrowing the deficit to the five-year average of 1.935 trillion to 2.0%, or 38 bcf, from 3.6% a week earlier. Inventories were at a surplus of 65.7% compared to year-ago stockpiles.

Next weeks build is also expected to come in well above the average due to mild weather across the US during the tracked period, although the gain will be slightly smaller than initially expected due to somewhat cooler conditions across the North. Nevertheless, supplies will draw even closer to flipping into surpluses, which in any case is expected to happen before the end of the month. The EIA will likely report next Thursday a build of 105-110 bcf for the week ended May 15th, compared to the five-year average of 89 bcf and the year-ago increase by 106 bcf.

Consistent weather

According to NatGasWeather.com, natural gas demand in the US will be very low compared to normal through May 21st, with bearish headwinds set to persist the following seven days as well, backing the aforementioned large stockpile builds.

The recent round of cooling over the Great Lakes and Northeast has given way to a warm-up in the coming days, with readings rising into the 70s and upper 80s. Pacific weather systems tracking inland will lower temperatures across California and the Southwest, shifting warm high pressure over the southern and eastern US through early next week, followed by additional weather systems mid next week that will bring showers, thunderstorms and a slight cooling. In all, with readings remaining in a comfortable range through next week, both heating and cooling demand will be kept to a minimum.

Active weather in a typical spring fashion will continue through the week after as well, with showers and thunderstorms across the country. The South and East will become very warm as readings hover a few degrees above usual, while the West remains slightly cooler than normal due to passing Pacific weather systems, but will warm up as the week progresses. Although the North will remain warm, weather systems tracking through will keep bringing periods of slight cooling, helping offset the moderate cooling demand over the southern-eastern US.

Readings

According to AccuWeather.com, temperatures in New York on May 16-17th will peak at 82-85 degrees Fahrenheit, compared to the average 71, followed by a cooling to the low-mid 70s over the following week. Chicago will peak at 78 degrees through May 17th, 8 above usual, before dropping to 56 degrees on May 19th and remaining in the 60s through May 24th.

Down South, readings in Houston will max out in the upper 80s through May 20th, compared to the average 85-86, before easing a few degrees through the end of the month. On the West Coast, highs in Los Angeles will hover near 70 degrees through May 25th and will establish in the upper 70s and low 80s afterwards.

Pivot points

According to Binary Tribune’s daily analysis, June natural gas futures’ central pivot point stands at $2.972. In case the contract penetrates the first resistance level at $3.056 per million British thermal units, it will encounter next resistance at $3.104. If breached, upside movement may attempt to advance to $3.188 per mBtu.

If the energy source drops below its S1 level at $2.924 per mBtu, it will next see support at $2.840. In case the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.792 per mBtu.

In weekly terms, the central pivot point is at $2.826. The three key resistance levels are as follows: R1 – $2.942, R2 – $3.003, R3 – $3.119. The three key support levels are: S1 – $2.765, S2 – $2.649, S3 – $2.588.