Natural gas trading outlook: futures extend gains on weather forecasts, EIA report eyed

Natural gas rose on Thursday, extending the biggest single-day advance since February, as weather forecasts called for a cold end to the month across the Midwest and Northeast, while the EIA will likely report today a larger-than-average inventory withdrawal last week. Mild temperatures across the remaining regions capped gains.

Natural gas for delivery in February gained 1.79% by 9:38 GMT to trade at $3.291 per million British thermal units, having shifted in a daily range of $3.312-$3.235. The energy source surged 9.85% yesterday to $3.233, its biggest daily gain since February 19th. Prices are up 11.8% so far this week.

The power-station fuel surged yesterday as weather models showed colder-than-usual weather over the northern US and Midwest starting late next week. According to NatGasWeather.com, natural gas demand in the US through January 21st will be moderate compared to normal, but high for the far North, with a slightly cooler weather trend for the following seven days.

Cold Canadian air will continue to affect the Great Lakes and Interior Northeast today and on Sunday into Monday, but the rest of the US will remain quite mild. The southern parts of the country will see readings range between 50 and 70 degrees Fahrenheit, including in California.

Weather systems tracking across the US around January 21st-22nd will tap colder Canadian air, which will bring temperatures across the central and eastern US to seasonal and below-seasonal readings. More importantly, Arctic air will be lurking right over the Canadian border, bearing the potential to be tapped by northern US weather systems, which would bring brief blasts of much colder temperatures.

Bloomberg reported, citing Jim Southard, a meteorologist with Frontier Weather, that readings over the Midwest and Northeast will fall as much as 20 degrees below usual late next week.

“The weather data has been all over the place on how much colder air will arrive for the last week of January…” NatGasWeather.com said in a report. “But based on the strength of Wednesday’s move it appears the markets have been convinced enough colder temperatures are coming for the last week of January.”

However, it still remains uncertain how the pattern will play out. Meanwhile, the remaining portions of the US are expected to see mostly seasonal weather, keeping in check extensive price gains.

Temperatures

According to AccuWeather.com, readings in New York will range between 26 and 27 degrees on January 17th, below the average 27-38, before jumping to 28-40 degrees four days later. Chicago will be colder-than-usual tomorrow, ranging between 23 and 27 degrees, before reaching the above-normal 27-34 degrees on January 20th.

Down South, Texas City will enjoy seasonal weather on January 17th at 49-62 degrees and is expected to remain at these levels through January 21st. On the West Coast, Los Angeles will see highs reach 74 degrees tomorrow, 6 above usual, with forecasts calling for warmer-than-normal weather through January 29th.

Supplies

The Energy Information Administration is expected to report that US natural gas inventories slid by 220-230 billion cubic feet in the week ended January 9th. If confirmed, this would exceed the five-year average drop of 190 bcf, bringing the deficit back to ~100 bcf. Supplies dropped by 268 billion cubic feet during the comparable week a year earlier.

Next weeks EIA report is also projected to show an above-average weekly decline as the recent Arctic blasts are factored in but the following one should be much thinner due to milder conditions late this week into next.

The EIA reported last Thursday that US natural gas inventories slid by 131 billion cubic feet (bcf) during the week ended January 8th, compared to analysts’ projections for a drop of 121 bcf. Supplies declined by 191 billion cubic feet during the same week a year earlier.

Total gas held in US storage hubs amounted to 3.089 trillion cubic feet, narrowing the deficit to the five-year average of 3.156 trillion to 2.1% from 2.5% during the previous week. Stockpiles stood at 2.839 trillion cubic feet a year ago, 8.8% below current levels.

Pivot points

According to Binary Tribune’s daily analysis, February natural gas futures’ central pivot point stands at $3.167. In case the contract penetrates the first resistance level at $3.403 per million British thermal units, it will encounter next resistance $3.572. If breached, upside movement may attempt to advance to $3.808 per mBtu.

If the energy source drops below its first support level at $2.998 per mBtu, it will next see support at $2.762. If the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.593 per mBtu.

In weekly terms, the central pivot point is at $2.978. The three key resistance levels are as follows: R1 – $3.144, R2 – $3.343, R3 – $3.509. The three key support levels are: S1 – $2.779, S2 – $2.613, S3 – $2.414.