Natural gas trading outlook: futures set for a weekly decline with weather in focus

Natural gas was mostly unchanged on Friday after losing over 6% in the previous three sessions, with weather forecasts calling for comfortable temperatures settling across most of the US in the coming days. A bearish supplies report by the Energy Information Administration on Thursday also helped maintain the bias to the downside.

On the New York Mercantile, natural gas futures for settlement in October traded at $3.824 per million British thermal units at 9:26 GMT, up 0.13% on the day. Prices held in a daily range between $3.815 and $3.844. The contract lost 0.73% on Thursday, a third straight session of losses, to settle at $3.819. Prices are down little over 6% so far this week.

The Energy Information Administration reported yesterday that US natural gas stockpiles added 79 billion cubic feet (bcf) in the week ended August 29th, exceeding analysts projections for a build in the range of 72-76 bcf. At 2.709 trillion cubic feet, storage levels narrowed the deficit to the five-year average of 3.204 trillion cubic feet to 15.4%. This was the twentieth consecutive week of above-average inventory injections.

US weather

Bearish sentiment was further fanned as weather forecasts called for an upcoming almost nationwide cooling. According to NatGasWeather.coms September 5th – 11th weather outlook, a fast-moving cool front will bring showers, thunderstorms and comfortable temperatures across the southern and eastern US during the weekend and early next week. Cooling demand over the next seven days will remain overall moderate compared to normal as the western and far southern parts of the country will remain quite warm, with highs reaching into the upper 80s and 90s.

Much of the US will see pleasant highs of 70s and lower 80s before a strong cold Canadian system tracks deep into the central US late next week. Extended forecasts for the period between September 12th and September 18th show that the aforementioned Canadian weather system will track across the northern US and Midwest, extending further south into Texas and the Gulf Coast. This will lead to lower-than-seasonal cooling demand and will even spur some heating demand over the Midwest where overnight lows may drop to the 30s and 40s. However, the cold spell is expected to last only for a couple of days, and the lack of additional cold blasts will allow temperatures to return to comfortable levels, eliminating fears of early winter season price spikes.

With readings across most of the US set to range in the 70s and 80s during the third week of September, cooling demand will remain low, paving the way for massive inventory builds which will further narrow the five-year-average deficit. Only the West is expected to remain warmer than normal.

According to AccuWeather.com, the high in New York on September 8th will be 78 degrees Fahrenheit, matching the seasonal level, before sliding back to as much as 73 degrees six days later. Chicago will drop to 71 degrees on September 7th, 8 below the average, followed by a further drop to 65-66 degrees through between September 12th and September 19th, with a few exceptions.

To the South, Houston will see readings peak at 92-93 degrees between through September 11th, 2-3 degrees above usual, before easing to as much as 82 degrees on September 14th. On the West Coast, the high in Los Angeles on September 7th will be 92 degrees, 8 above usual. A brief drop to seasonal levels will follow but highs will once again surge into the lower-mid 90s between September 12th and September 18th.

Technical support and resistance

According to Binary Tribune’s daily analysis, October natural gas futures’ central pivot point stands at $3.829. In case the contract penetrates the first resistance level at $3.869 per million British thermal units, it will encounter next resistance at $3.919. If breached, upside movement will probably attempt to advance to $3.959 per mBtu.

If the energy source drops below its first support level at $3.779 per mBtu, it will next see support at $3.739. If the second key support zone is breached, the power-station fuel’s downward movement may extend to $3.689 per mBtu.