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Natural gas trading outlook: futures pare hefty losses ahead of EIA data

Natural gas rose on Wednesday, trimming a sizable weekly decline, before data by the EIA shows on Thursday that US natural gas inventories probably fell more than the average last week. However, forecasts for seasonal weather and expectations for thinner stockpile withdrawals to follow held gains in check.

Natural gas for delivery in February gained 5.72% to $2.993 per million British thermal units by 9:42 GMT, having shifted in a daily range of $2.999-$2.880. The contract settled 9.47% lower at $2.831 on Tuesday after it earlier fell to a one-week low of $2.821 per mBtu. This was the biggest decline since February 2014.

The energy source sold off sharply yesterday as weather forecasts during the weekend and the MLK holiday showed Arctic conditions retreating in the longer term, shrugging off the previously priced-in fears of much colder-than-usual temperatures. Losses were pared today as investors eyed EIAs inventory report.

The Energy Information Administration reported last Thursday that US natural gas inventories declined by 236 billion cubic feet in the week ended January 9th, compared to analysts’ projections for a decrease in the range of 220-230 bcf. The drop exceeded the five-year average draw of 190 bcf, while inventories slid by 268 bcf a year earlier.

Total gas held in US storage hubs amounted to 2.853 trillion cubic feet, expanding a deficit to the five-year average inventories of 2.966 trillion to 3.8% from 2.1% during the previous week, or 113 bcf. The surplus to the year-ago stockpiles level of 2.571 trillion cubic feet expanded to 11.0%.

The EIA will likely report a withdrawal in the range of 216-250 billion cubic feet for the week ended January 16th, compared to the five-year average of -176 bcf and the 133-bcf drop during the comparable week a year earlier. However, the following report, due next week, should reflect a much thinner inventory withdrawal as this weeks overall mild conditions across the US get factored in.

Weather outlook

According to NatGasWeather.com, natural gas demand in the US will be moderate-to-low compared to normal through January 27th, with a neutral weather trend for the following seven days.

National heating demand will be lower than average this week as most of the US will be covered by higher-than-normal temperatures. Cooler weather systems will track through the US every few days, but the most threatening Arctic air will remain contained mostly within southern Canada.

A notable system will track across Texas today and then head into the Southeast, NatGasWeather.com reported, followed by another system over the Midwest and Northeast that will push deep into the Southeast during the weekend, carrying colder readings.

Early next week, weather systems tracking across the Midwest and eastern US will bring rain, snow and slightly cooler-than-usual temperatures. However, with the coldest Arctic air failing to push deep into the country, the western, central, and southern US will remain near or warmer than normal. Glancing cold blasts will hit only the Great Lakes and Northeast.

Gene McGillian, senior analyst at Tradition Energy, said for Bloomberg: “We are not going to see sustained cold over the next two weeks. The market is reflecting the idea that without really bitter cold weather, and with production levels ramping back up to record levels, we can’t really hold gains in a rally.”

However, close observation will be needed for the start of February to see if the weather will trend much lower in case masses of Arctic air succeed to push deep into the US.

Temperatures

According to AccuWeather.com, readings in New York will range between 30 and 38 degrees on January 23rd, compared to the average 27-38, and will remain close to normal levels through January 25th, before dropping to 5-8 degrees lower for the next three days. Chicago will enjoy mostly seasonal weather through January 28th, with readings on January 24th set to range between 30 and 36 degrees Fahrenheit, compared to the average 18-31.

Down South, temperatures in Texas City will max out at 50 degrees on January 23rd, 12 below normal, before recovering to seasonal levels 2 days later and remaining there through the end of the month. On the West Coast, Los Angeles will be warmer than usual for the remaining portion of the month, with readings set to range between 57 and 79 degrees on January 25th, compared to the average 48-68.

Pivot points

According to Binary Tribune’s daily analysis, February natural gas futures’ central pivot point stands at $2.899. In case the contract penetrates the first resistance level at $2.977 per million British thermal units, it will encounter next resistance $3.123. If breached, upside movement may attempt to advance to $3.201 per mBtu.

If the energy source drops below its first support level at $2.753 per mBtu, it will next see support at $2.675. If the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.529 per mBtu.

In weekly terms, the central pivot point is at $3.087. The three key resistance levels are as follows: R1 – $3.392, R2 – $3.656, R3 – $3.961. The three key support levels are: S1 – $2.823, S2 – $2.518, S3 – $2.254.

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