Natural gas weekly recap, August 18 – August 22

Natural gas fell on Friday but closed the week higher as temperatures across most of the high-consuming US areas warmed up and a low pressure system southeast of the Gulf raised some eyebrows. However, another larger-than-average US inventories build, coupled with forecasts calling for a cooling of temperatures next week, limited gains.

On the New York Mercantile Exchange, natural gas futures for settlement in September fell by 1.26% on Friday to close the trading session at $3.840 per mBtu. Prices ranged between $3.893 and $3.828. The energy source added 1.73% on Thursday, having hit a one-week high of $3.955, and settled the week 1.7% higher.

According to NatGasWeather.com’s August 22nd – August 28th weather outlook, very warm temperatures across the southern and central US will continue to drive regionally strong cooling demand as highs extend into the mid 90s and lower 100s. However, readings across much of the US will ease by the middle of next week as weather systems track through the northern US, bringing below normal temperatures. The first cool wave will be felt over the Northeast this weekend.

Overall cooling demand during the next seven days will remain moderate compared to normal thanks mainly to the 3-10 degrees Fahrenheit above-normal temperatures across the southern US and Midwest.

However, more above-average injections are to come in the next weeks as much cooler conditions are already pushing into the Rockies and will gradually extend into the Plains and Midwest next week, bringing highs down.

During the August 29th – September 4th span, NatGasWeather.com expects the cooler weather system that had previously been established over the Midwest and Northeast to dissipate and give way to several days of warming, especially over the southern and eastern US. However, temperatures are not projected to get hot to an extent that would cause natural gas prices to spike too high as additional Canadian weather systems will try to enter the northern US early September, carrying below-usual temperatures.

“We continue to believe the bias remains to the downside as weather systems will continue to sweep across many regions of the US through the first week of September, NatGasWeather.com analysts said in a report. “There is also potential for cooling to push fairly deep into the central and eastern US as well. If just one of these weather systems play out to the cold side, builds of 90+ Bcf will return as summer heat begins to wane.”

US natural gas inventories

The US Energy Information Administration (EIA) posted its weekly readings on natural gas storage levels on Thursday, to reveal 88 billion cubic feet (Bcf) were added to inventories in the week through August 15th. The build was larger than the expected 83 Bcf, and was almost double the 5-year average gain for the week, while also marking the sixteenth straight week of higher-than-average injections.

Inventories were brought to 2 555 trillion cubic feet, or just 17.3% below the 5-year average, having replenished 1.733 trillion cubic feet over the past 20 weeks – a record pace. The government agency expects nationwide inventories to hold 3.463 trillion cubic feet at the end of October, which would require average weekly builds of 83 bcf, compared to the average of 67 bcf.

Next week’s inventory report is also projected to come in well bearish, albeit leaner than recent ones.

Cyclone possibility

Natural gas drew some support as a low pressure area east of the Windward Islands stood a chance of becoming a cyclone formation during the weekend. However, latest data showed that the threat of the formation impacting key natural gas infrastructure in the Gulf of Mexico remained very low, with weather models projecting it to keep well off the Atlantic coasts.

According to AccuWeather.com, the high in New York on August 26th will be 84 degrees Fahrenheit, 3 above usual, before dropping to 78 degrees five days later. Detroit will reach 86 degrees on August 27th before sliding to as much as 77 degrees on September 4th, matching seasonal values.

Down South, the high in Houston on August 29th will be 94 degrees Fahrenheit, 2 above average, and readings will remain mostly seasonal, in the lower 90s, through September 6th. On the West Coast, Los Angeles will see temperatures maxing out at 89 degrees on August 27th before dropping to 82 degrees on September 2nd, 3 below normal.

Technical support and resistance

According to Binary Tribune’s daily analysis for Monday, September natural gas futures’ central pivot point stands at $3.854. In case the contract penetrates the first resistance level at $3.879 per million British thermal units, it will encounter next resistance at $3.919. If breached, upside movement will probably attempt to advance to $3.944 per mBtu.

If the energy source drops below its first support level at $3.814 per mBtu, it will next see support at $3.789. If the second key support zone is breached, the power-station fuel’s downward movement may extend to $3.749 per mBtu.