Natural gas futures head for weekly drop on cooler weather outlook

Natural gas slid on Friday, returning to negative weekly territory, as weather forecasts calling for cooler conditions across large portions of the US next week offset a bullish inventory report by the EIA.

Natural gas for delivery in October traded 0.81% lower at $2.703 per million British thermal units at 08:21 GMT, shifting in a daily range of 2.717 – 2.700. The contract jumped 2.9% on Thursday, reversing its daily movement following the release of the inventory report, but returned to negative weekly territory on Friday, currently down 0.3%.

The Energy Information Administration reported on Thursday that US natural gas inventories rose by 94 billion cubic feet in the week ended August 28th, exceeding analysts median estimate of 88 bcf. This was also well above the five-year average gain for the week of 60 bcf and a 79-bcf increase a year earlier. However, a surprise reclassification reduced the injection by 8 bcf to 86 bcf, a bullish surprise that led prices higher.

Total gas held in US storage hubs amounted to 3.193 trillion cubic feet as of August 28th, expanding a surplus over the five-year average of 3.071 trillion to 4.0% from 2.9% a week earlier. Supplies were also 18.3% above the year-ago stockpiles level of 2.698 trillion cubic feet.

The bullish injection, however, failed to extend price gains into Friday as main focus once again fell on mid-term weather developments. Very warm temperatures will continue to dominate most of the southern and eastern US going into next week, NatGasWeather.com said, although weak weather systems will keep highs from getting exceptionally hot. Max readings over the Midwest, Mid-Atlantic and Northeast will be limited to the mid 80s and lower 90s, while Texas and the South will be a bit hotter as temperatures reach the mid 90s. The West will be windy and cooler as Pacific systems track inland.

This week’s warm-up will lead to a narrower inventory gain for the September 10th report, but the mentioned localized cooler weather systems will keep cooling demand checked, resulting in another larger-than-average build. Initial estimates point to a stockpiles increase of about 80 bcf for the week ended September 4th, 17 bcf above the average, while supplies grew by 90 bcf during the comparable period a year earlier.

Next week will start with high pressure continuing to dominate much of the southern, central and eastern US, while the West will remain cooler, according to NatGasWeather.com. However, a strong cool blast will hit the northern Rockies and central US as the week progresses, potentially reaching northern Texas as well. The West Coast will gradually warm up to above seasonal as the ridge of high pressure shifts, while the East will cool.

Weather models are producing varying solutions on exactly how much cool air will push into the the northern and eastern US next week and beyond, but overall, sentiment remains skewed to the bearish side as cooling demand will drop next week and more so afterwards, lining up a series of above-average inventory gains. Although the eastern ridge of high pressure could try to regain some ground in-between the Canadian systems, it won’t become strong enough to bring intense heat.

Readings

According to AccuWeather.com, temperatures in New York will peak at 80-84 degrees Fahrenheit on September 5-7th, compared to the usual 78-79, before jumping into the low 90s for three days followed by a drop to seasonal and slightly lower afterwards. Chicago will max out at 86-88 degrees through September 7th, above the average 79, before highs drop to the low-mid 70s.

Down South, readings in Houston will peak at 90-93 degrees through September 13th, near the average 89-91 for the period, before easing to the low-mid 80s. On the West Coast, temperatures in Los Angeles will max out at 79 degrees tomorrow, 5 below usual, followed by a warm-up to seasonal and slightly above through September 16th.

Pivot points

According to Binary Tribune’s daily analysis, October natural gas futures’ central pivot point stands at $2.698. In case the contract penetrates the first resistance level at $2.762 per million British thermal units, it will encounter next resistance at $2.800. If breached, upside movement may attempt to advance to $2.864 per mBtu.

If the energy source drops below its S1 level at $2.660 per mBtu, it will next see support at $2.596. In case the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.558 per mBtu.

In weekly terms, the central pivot point is at $2.694. The three key resistance levels are as follows: R1 – $2.746, R2 – $2.778, R3 – $2.830. The three key support levels are: S1 – $2.662, S2 – $2.610, S3 – $2.578.