Natural gas trading outlook: futures off 8-month lows after US inventories report

Natural gas futures soared after the US posted weekly storage readings today. The build was almost double the average, though lower than expected, and induced enough bullish sentiment to lift the fuel 2% and off the 8.1/2-month low reached earlier.

On the New York Mercantile Exchange, natural gas for delivery in September added 1.72% by 14:48 GMT, to trade at $3.851 per million British thermal units. Prices ranged between a daily high of $3.865 and low at $3.760 per mBtu, not far off from Monday’s 8-1/2-month low of $3.725. The power-plant fuel lost 0.99% on Wednesday to close the trading session $3.786 per mBtu.

The US Department of Energys statistics arm, the Energy Information Administration (EIA), posted natural gas storage data for the week ended July 25 today, revealing stocks had added 88 billion cubic feet (Bcf), which was less than the expected 93 Bcf, but still almost double the 5-year average of 46 bcf. Levels are 18.7% behind last years reading for the week, and stocks are replenishing at the fastest pace since 2001.

The blue fuel will likely see a sizable injection for next weeks report as well, which will cover the period to August 1, analysts at NatGasWeather.com said. They had predicted a gain of 90-94 Bcf for this week. However, a gradual warm-up starting late this week and extending throughout August is expected to begin lifting prices as early as next week.

US weather outlook

According to NatGasWeather.com’s weather forecast for the July 31 – August 6 period, temperatures over most of the US will begin to edge higher starting next week, paving the way for a slightly warmer trend. Currently, readings in the country’s central and southern parts are below normal after an unseasonably cool air mass pushed deep into Texas and the Southeast, ensuring comfortable readings and lower-than-usual cooling demand. As we have reported in the previous days, the western and southernmost areas of the country remain warm to hot, inducing moderate-to-high local electricity demand to power air conditioning.

In the time span between August 7th and August 13th, NatGasWeather.com expects high pressure to set up over the eastern, southern and western parts of the country, with temperatures rising to between 90 and 100 degrees Fahrenheit. The Midwest and Northeast, however, will see a much milder warm-up as weather systems carrying cool air will likely track down from southern Canada and keep any temperature jumps in check. The remaining portion of the country will see warm weather driving seasonally high cooling demand, starting at moderate levels early next week.

According to AccuWeather.com, the high in New York on August 2nd will be 75 degrees Fahrenheit, 9 below normal, before jumping to as much as 88 degrees on August 13th, exceeding the average of 83 degrees. Detroit will see readings peaking at 79 degrees on August 2nd, 3 beneath usual, and apart from several single days, temperatures will remain 3-4 degrees below average through the end of August.

To the South, the high in Texas City on August 2nd will match seasonal levels at 90 degrees, before jumping to as much as 95 degrees on August 18th, compared to the average of 90 degrees. On the West Coast, Sacramento will see temperatures peaking at 101 degrees on August 1st, 9 above usual, and will remain between 2 and 10 degrees above average levels through the end of August.

Technical view

According to Binary Tribune’s daily analysis, in case natural gas for settlement in September penetrates the first resistance level at $3.828 per million British thermal units, it will encounter next resistance at $3.869. If breached, upside movement will probably attempt to advance to $3.909 per mBtu.

If the energy source drops below its first resistance level at $3.747 per mBtu, it will see support at $3.707. If the second key support zone is breached, the power-station fuel’s downward movement may extend to $3.666 per mBtu.