Natural gas trading outlook: futures little changed ahead of US supply data

Natural gas swung between minor gains and losses on Thursday after losing almost 5.5% the previous two sessions as market players weighed expectations for one of the smallest inventory builds during the replenishment season against prospects of cooling temperatures across most of the US.

Natural gas for delivery in October added 0.13% by 11:06 GMT to trade at $3.852 on the New York Mercantile Exchange, having ranged between $3.867 and $3.837 for the day. The power-station fuel fell by 1.1% on Wednesday, adding to Tuesdays steep 4.3% drop, the biggest in six month, to close at $3.847 per mBtu.

Government data by the Energy Information Administration is expected to show US natural gas inventories probably rose by 74 billion cubic feet in the week ended August 29th, exceeding the five-year average gain of 56 bcf by a third. Inventories are expected to jump by an amount ranging between 72 and 76 bcf, NatGasWeather.com analysts said in a note to clients, with values below 72 seen as slightly bullish and below 70 as quite bullish. If the report, however, comes in at near or above the upper limit, a sell off to $3.75 per mBtu and even below can be expected.

However, with receding cooling demand at hand as the summer ends, we are set for massive builds possibly reaching over 100 billion cubic feet for weeks to come, before the winter kicks in and heating demand becomes the primary market mover. Thus, overall bearish sentiment will continue to dictate the power-station fuels general direction, unless of course the hurricane season, whose peak is in September, threatens to impact supplies from major production areas.

Inventories added 75 billion cubic feet in the seven days through August 22nd, the EIA reported last Thursday, which narrowed the deficit to five-year average levels to 17%, down from 55% at the end of March.

Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut, said for Bloomberg: “You are seeing the removal of expectations that we are going to see some seasonal demand for the middle part of September. You are seeing confidence that we are going to erase more of this deficit and we are not worried about what kind of winter we will see.”

US weather

According to NatGasWeather.com, cooling demand within the next seven days will be overall moderate compared to normal as readings across the Midwest and eastern US rise over the next couple of days, but it will begin to transition into lower than usual as early as next week. The southern US will also see a few degrees of warming, with highs reaching into the mid and upper 90s.

However, a following cooler Canadian weather system will sweep across the central and eastern US during the weekend, carrying showers, thunderstorms and slightly cooler-than-seasonal temperatures. This will bring cooling demand across most of the US to moderate-to-low.

Between September 11th and 17th, cooler weather systems tracking across the central and eastern will bring comfortable temperatures in the region, and will even spur some heating demand as lows during nights will briefly drop into the 40s, and even 30s in some areas. The Canadian weather systems will also push fairly deep into Texas and the Southeast, lowering highs into the upper 70s and lower 80s instead of the 90s. As a result, national cooling demand is expected to noticeably decrease, paving the way for the return of 90+ bcf inventory builds. An even more pleasant weather pattern is expected to follow for much of the US in the third week of September.

According to AccuWeather.com, the high in New York on September 6th will be 89 degrees Fahrenheit, 10 above usual, before sliding back to as much as 71 degrees six days later. Detroit will reach 87 degrees on September 5th, 10 above the average, followed by a drop to 73-77 degrees through September 10th and a further slide to 60-66 degrees through September 16th.

To the South, Texas City will see readings peak at 89-91 degrees between September 5th and Septemebr 11th, 1-3 degrees above usual, before easing to as much as 82 degrees on September 15th. On the West Coast, the high in Sacramento on September 7th will be 92 degrees, 3 above usual, before a follow-up heating pushes readings into the higher 90s between September 12th and September 14th.

Technical support and resistance

According to Binary Tribune’s daily analysis, October natural gas futures’ central pivot point stands at $3.864. In case the contract penetrates the first resistance level at $3.900 per million British thermal units, it will encounter next resistance at $3.952. If breached, upside movement will probably attempt to advance to $3.988 per mBtu.

If the energy source drops below its first support level at $3.812 per mBtu, it will next see support at $3.776. If the second key support zone is breached, the power-station fuel’s downward movement may extend to $3.724 per mBtu.