Natural gas trading outlook: futures gain on cooler readings, EIA data eyed

Natural gas rose on Thursday, trimming its weekly decline, as the outlook for cooler readings across the northern and eastern US implied higher heating demand. However, mild weather across the remaining portions of the US, coupled with expectations for a smaller-than-average inventory decline last week capped gains.

Natural gas for delivery in March rose 2.67% to $2.918 per million British thermal units at 10:18 GMT, having ranged between $2.924 and $2.843 during the day. Prices slid 3.17% on Wednesday to $2.842 and are down ~1.2% for the week so far.

According to NatGasWeather.com, natural gas demand in the US will increase to moderate-to-high through February 4th, with a neutral weather trend for the following seven days, apart from the East where readings will trend cooler.

Warmer-than-seasonal temperatures that have been dominating the western and central US will gradually ease to average or slightly-lower levels the next several days, while a weather system carrying rain and snow drifts across the northern US today. It will bring sub-freezing temperatures on Friday, particularly over the Great Lakes and Northeast.

Another system will bring rains over southern California and the Southwest, before tracking into Texas during the weekend. A blast of cold air will impact the northern US on Sunday into Monday, keeping highs below the freezing point for several days, NatGasWeather.com reported.

Frigid Arctic air will continue to keep temperatures across the Great Lakes and Northeast colder than usual through next week, with a cold blast standing a greater chance of pushing deeper southward around February 5-7th which could lower temperatures across the eastern US to below average. However, the Great Plains and western parts of the country are expected to remain near or warmer than normal through the first 10 days of February, keeping national heating demand from jumping too high.

Temperatures

According to AccuWeather.com, readings in New York on January 31st will range between 16 and 26 degrees, compared to the average 27-39, and will bottom at 7 degrees two days later. The low in Boston will be 10 degrees, 12 below usual, before plunging to 0 degrees on February 2nd. Seasonal readings are expected to return around February 10th.

Chicago will see the mercury range between 19 and 23 degrees tomorrow, beneath the usual 18-32, and highs will fail to exceed 25 degrees before February 9th. Down South, Houston will be slightly cooler than usual on January 31st at 53-61 degrees, compared to the average 46-64, and will return to seasonal values a week later. On the West Coast, Los Angeles will peak at 73 degrees tomorrow, 5 above normal, with highs expected to remain around the mid-70s for most of February.

Supplies

The EIA reported last Thursday that US natural gas inventories fell by 216 billion cubic feet in the seven days through January 16th, compared to analysts’ projections for a drop in the range of 220-230 bcf. Total gas held in US storage hubs amounted to 2.637 trillion cubic feet, expanding the deficit to the five-year average of 2.790 trillion to 5.5% from 3.8% during the previous period. The surplus to the year-ago stockpile level of 2.438 trillion cubic feet narrowed to 8.2% from 11.0% a week earlier.

This week’s report is expected to reflect a much thinner inventory withdrawal that would bring deficits to ~100 bcf once again as overall mild conditions across the US, apart from the Northeast, get factored in. Early estimates called for a draw of 108-113 bcf, compared to the five-year average decline for the week at -168 billion cubic feet, while inventories fell by 219 bcf during the comparable period last year.

February 5th’s report, which will be based on data from the current week, is also expected to come in leaner than the average due to the recent widespread warmth, particularly across the central and southern US where highs reached into the 70s. The following builds, however, will post larger withdrawals, especially if the coming Arctic blasts over the northern US have a more widespread impact.

Pivot points

According to Binary Tribune’s daily analysis, March natural gas futures’ central pivot point stands at $2.843. In case the contract penetrates the first resistance level at $2.894 per million British thermal units, it will encounter next resistance $2.945. If breached, upside movement may attempt to advance to $2.996 per mBtu.

If the energy source drops below its first support level at $2.792 per mBtu, it will next see support at $2.741. If the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.690 per mBtu.