Natural gas trading outlook: futures extend drop before EIA report

Natural gas fell for a second day on Wednesday before government data shows an alleged thin inventory decline which would bring stockpiles much closer to average levels. Forecasts for active and overall cold weather across the US through the next two weeks kept prices underpinned.

On the New York Mercantile Exchange, natural gas for delivery in February traded 1.91% lower at $3.035 per million British thermal units at 10:52 GMT, having shifted in a daily range of $3.130-$3.031. The contract closed 3.28% lower at $3.094 on Tuesday, paring Mondays 5.5% jump.

The Energy Information Administration reported last Wednesday that US natural gas stockpiles slid 49 billion cubic feet in the week ended December 19th. This sharply differed from the year-ago drop of 193 bcf and the five-year average draw of 138 bcf, allowing to further gain on deficits.

Total gas held in US storage stood at 3.246 trillion cubic feet, narrowing the gap to the 3.415-trillion average to 4.9% from 7.3% a week earlier. Compared to a year ago, supplies expanded their surplus to 4.8% from 0.2% during the preceding week.

This week’s report, to be released a day earlier on Wednesday due to the New Year’s Day holiday, is also expected to show a much thinner decline than the average as mild conditions last week curbed heating demand. The EIA is likely to report that stockpiles fell by 35-40 billion cubic feet in the seven days through December 26th, compared to the five-year average decline of 114 billion cubic feet. If confirmed, this would allow for inventories to make up another 70-80 bcf on deficits, shrinking the gap to only ~100 bcf.

However, next weeks draw is expected to be much larger and closer to the five-year average as it will factor this weeks cold snap. With cold weather expected to dominate through January, bullish inventory reports are set to continue coming in.

Cold weather

A bearish inventory report later today would certainly have a negative initial impact on the market, but prices could afterwards draw significant support as cold weather across the US spurs much higher heating demand compared to recent weeks.

According to NatGasWeather.com, national natural gas demand in the US will be high in the next seven days, with no certain weather trend for the following week.

Frigid air has engulfed the majority of the US, pushing temperatures across almost the entire country to at least 10 degrees Fahrenheit below normal, inclduding freezing readings over many of Californias high population cities. The cold blast is expected to hold through New Years Day, according to NatGasWeather.com, before a weather systems tracking from the Southwest brings warmer weather to the eastern US this weekend. However, the warmer pattern will swiftly give way to colder conditions as Arctic air again gets tapped and brought into the northern US, potentially extending into the central regions of the country.

Early next week, cold weather will again dominate the central and northern US, pushing heating demand higher. However, this time the Arctic blast may not extend much into the South, leaving the region’s high-consumption states, including Texas, out of harm’s way. A brief warm-up in the North might follow around January 10th, but cold conditions are likely to return, ensuring hefty inventory withdrawals.

“It will then be up to how successful an arriving Pacific weather system is in tapping into very cold Canadian air as it tracks across the northern US around January 10th if the chilly
pattern is going to continue,” NatGasWeather.com said.

Temperatures

According to AccuWeather.com, temperatures in New York today will range between 23 and 32 degrees Fahrenheit, below the average of 28-39, before briefly jumping to 39-52 on January 4th and then falling back to below-average through January 10th. Chicago will range between 23 and 27 degrees on January 1st, compared to the seasonal 19-32, and will remain colder than usual through January 9th.

Down South, Houston will see readings range between 41-48 degrees today, below the average of 45-63, followed by a warm-up to 43-58 degrees on January 3rd, and is expected to reach seasonal levels around January 10th. On the West Coast, Los Angeles will range between 40 and 60 degrees tomorrow, compared to the usual 47-68, before temperatures jump to the above-seasonal 52-74 on January 5th.

Pivot points

According to Binary Tribune’s daily analysis, February natural gas futures’ central pivot point stands at $3.117. In case the contract penetrates the first resistance level at $3.155 per million British thermal units, it will encounter next resistance at $3.216. If breached, upside movement may attempt to advance to $3.254 per mBtu.

If the energy source drops below its first support level at $3.056 per mBtu, it will next see support at $3.018. If the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.957 per mBtu.