Natural gas trading outlook: futures extend drop on forecasts for comfortable weather

Natural gas fell for a fourth day in five on Tuesday as forecasts for cooler conditions across the north-eastern US starting late this week overshadowed a very warm short-term outlook and projections for a below-average inventory build to be reported on Thursday.

Natural gas for delivery in July traded 0.37% lower at $2.723 per million British thermal units at 08:02 GMT, shifting in a daily range of $2.743 – $2.718. The contract tumbled 3% on Monday to $2.733 per mBtu.

According to NatGasWeather.com, natural gas demand in the US will be high to very high today and tomorrow, followed by a drop to moderate levels through the end of the month as cooler Canadian systems arrive on Friday.

Before that, very warm to hot temperatures will dominate the entire US early this week, except for the far northern regions. This will drive the strongest cooling demand for the year so far, with widespread highs in the 90s and 100s. Very warm to hot temperatures, combined with high humidity, will push the Heat Index to around 110 degrees Fahrenheit over the South and Southeast, while readings over the North peak in the mid-upper 80s, apart from the the upper Great Lakes and interior Northeast where a weather system with showers and thunderstorms will bring a cooling of several degrees.

However, high pressure will lose dominance to cooler Canadian weather systems on Friday into next week. This will result in considerably lower temperatures across the Midwest and East, while cooler air also spills into the Southeast to ease hot conditions of the past few weeks. The West will continue to experience widespread highs in the 90s and 100s, remaining a source for strong cooling demand.

Additional Canadian weather systems are anticipated to track across the central and eastern US in the last week of June going into July, NatGasWeather.com said, carrying below-normal temperatures, showers and thunderstorms. Florida and portions of the Southeast Coast will be the only regions of the eastern half of the US that will be warmer than usual, significantly easing cooling demand compared to the current week, while the West remains very warm to hot. High pressure might try to strengthen again over the East and North as the first week of July ends, but it remains yet unclear how successful that push would be.

Readings

According to AccuWeather.com, temperatures in New York will peak at 91 degrees Fahrenheit today and 84 degrees tomorrow, compared to the average 81-82, before easing to the the mid 70s through July 1st. The high in Chicago on June 24th will 82 degrees, matching the seasonal, followed by a drop to the mid-upper 70s through July 3rd.

Down South, readings in Houston will max out at 90-92 degrees through June 28th, compared to the average 91, before easing to the mid-upper 80s through July 4th. To the West, Sacramento will peak at 93 degrees today, 4 above normal, before surging to 102 degrees on June 25th, with highs set to remain in the 90s and lowers 100s through July 6th.

Inventories

This week’s inventory report is expected to come in below the average as lower supply due to maintenance offset a cooling that tropical storm Bill brought last week and Canadian weather systems tracking across the North. Early estimates point to a build of around 80 bcf for the week ended June 19th, compared to the five-year average gain of 86 bcf and the year-ago one of 110 bcf.

The following report, due out on July 2nd, will probably also reflect a smaller-than-average inventory increase due to very high cooling demand early this week. The EIA is expected to report a build of about 75 bcf for the seven days ended June 26th, compared to the average of 75 bcf and a gain of 102 bcf during last year’s comparable period.

The build after, however, will most likely rise back to well above the average as cooler weather across the eastern half of the US in late June and early July gets factored in, while supply continues to recover. The five-year average build for the week ended July 3rd is 75 bcf, while stockpiles jumped by 94 bcf a year earlier.

Pivot points

According to Binary Tribune’s daily analysis, July natural gas futures’ central pivot point stands at $2.734. In case the contract penetrates the first resistance level at $2.752 per million British thermal units, it will encounter next resistance at $2.772. If breached, upside movement may attempt to advance to $2.790 per mBtu.

If the energy source drops below its S1 level at $2.714 per mBtu, it will next see support at $2.696. In case the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.676 per mBtu.

In weekly terms, the central pivot point is at $2.837. The three key resistance levels are as follows: R1 – $2.934, R2 – $3.053, R3 – $3.150. The three key support levels are: S1 – $2.718, S2 – $2.621, S3 – $2.502.