Natural gas trading outlook: futures extend drop as cooler weather over the US dampens power demand

Natural gas futures were lower during early trade in Europe today, after a sizable weekly drop was logged on Friday. Weather forecasts project cooler weather over parts of the northern US, lowering power demand outlooks.

Front month natural gas futures, due in July, dropped 0.44% at the New York Mercantile Exchange to trade for $4.511 per million British thermal units at 9:18 GMT today. Prices ranged from $4.508 to $4.577 per mBtu. The contract dropped lost about 4.5% last week, after another sizable gain for US inventories was reported.

Natural gas extended its weekly decline on Thursday after the Energy Information Administration reported a larger-than-projected build in US natural gas inventories during the week ended June 13th. The log revealed a gain of 113 billion cubic feet, while analysts at NatGasWeather.com had suggested a 105-110 Bcf injection. The 5-year average gain for the week is 85 Bcf. Inventory levels remain 29.1% below last year’s readings for the same week.

However, movement to the downside is expected to be limited as the US enters the summer season when high temperatures spur electricity demand to power air conditioning, with power stations accounting for 30% of US natural gas consumption. The above-normal temperatures over the US recently will probably dent gains in the following report this week, which will cover the seven days ending June 20.

US weather report

NatGasWeather.com reported that the US will see quite unsettled weather this week, with plenty of storms and heavy rains. The central and eastern US will see temperatures drop several degrees, accompanied by storms and rains, while the South will remain seasonably warm, with highs in the 90s. Later in the week, the Northeast and Midwest will also start warming, to see readings in the high 80s. Overall cooling demand will probably remain moderate

In the 8-14 day outlook, NatGasWeather.com projects a relatively neutral trend for the US, with an upward bias. The northern half of the country will probably have some stormy and rainy days, though a high-pressure build will prevent too much cooling, and will allow for a rise in temperatures in early July.

New York will be quite sunny and moderately warm today, according to AccuWeather.com. Readings will range 64-81 degrees Fahrenheit, which is normal for the season. The weather will probably remain sunny and warm tomorrow, before a stormy, though warmer midweek, with possibly heavy rains. Boston temperatures will also be seasonal today and on Tuesday, between 61 and 77, with mostly sunny weather. The following two days will bring storms and rising temps.

Chicago is set for rainy and cloudy two days, with many thunderstorms, some heavy. Readings will be average, ranging 62-82 degrees. Starting Wednesday, readings will drop, but the skies will clear for a mostly sunny remainder of the week. Down South, Houston will be sunny and seasonally warm today, with readings in the range of 75-93 degrees. Starting tomorrow, however, a few days of heavy storms and rains are due, which will push readings down a little.

Over on the West Coast, Los Angeles will have mostly sunny, though slightly cooler-than-average weather over the following few days, with readings ranging lower 60s to mid 70s, a few below usual. Seattle weather will be warmer than normal today, with temperatures as high as 78, 7 degrees above average. Readings will drop to near normal tomorrow, and it will be cloudy and rainy up to Friday.

Technical view

According to Binary Tribune’s daily analysis, in case natural gas for settlement in July penetrates the first resistance level at $4.591 per million British thermal units, it will encounter next resistance at $4.652. If breached, upside movement will probably attempt to advance to $4.689 per mBtu.

If the energy source drops below its first resistance level at $4.493 per mBtu, it will see support at $4.456. If the second key support zone is breached, the power-station fuel’s downward movement may extend to $4.395 per mBtu.