Natural gas trading outlook: futures extend decline after smaller inventory drop

Natural gas slid for a fourth day this week, on track for a ninth weekly decline in ten, after data by the EIA showed a smaller-than-expected inventory withdrawal in the seven days through January 23rd, with another thin draw projected to come next Thursday.

Natural gas for delivery in March declined by 1.77% to $2.671 per million British thermal units by 9:38 GMT, having ranged between $2.733 and $2.669 during the day. The contract plunged 4.33% yesterday to $2.719 after it earlier slid to $2.672, the lowest since September 2012. Prices are down 9.9% so far this week.

The Energy Information Administration reported on Thursday that US natural gas inventories declined by 94 billion cubic feet in the seven days through January 23rd, well below analysts’ projections for a withdrawal in the range of 108-113 bcf. Stockpiles fell by 219 bcf during the same week last year, while the five-year average draw was 168 bcf.

Total gas held in US storage hubs amounted to 2.543 trillion cubic feet, narrowing the deficit to the five-year average inventories of 2.622 trillion to 3.0%, or 79 bcf, from 5.5% a week earlier. The surplus to the year-ago stockpiles level of 2.219 trillion cubic feet widened to 14.6% from 8.2% a week earlier.

Moreover, next weeks withdrawal is also expected to be below the average as the widespread warmth this week is factored in, especially with highs over the central and southern US that reached well into the 70s. The five-year average withdrawal for the week ended January 30th is 165 billion cubic feet, while inventories declined by 259 bcf during the comparable period a year earlier.

However, cooler weather already coming into effect, with more cold blasts expected to impact the northern US in the coming weeks, will keep inventories from turning deficits into surpluses as heating demand becomes locally high.

US outlook

According to NatGasWeather.com, natural gas demand in the US through February 5th will be moderate-to-high, compared to normal, with a slightly warmer weather trend for the following seven days.

A weather system with rains and snow will track across the Northeast today, followed by a strong blast of sub-freezing temperatures, including over the Great Lakes. A mild system will bring rains to Texas and the Southwest in the coming days, while a strong cold blast impacts the northern US on Sunday into Monday, pushing highs below the freezing point for several days.

The eastern US will be colder than usual throughout next week, NatGasWeataher.com reported, while the countrys Western regions remain dry with above-usual temperatures. Blasts of frigid Canadian air will hit the Great Lakes and Northeast late next week, keeping readings below the normal and bearing the potential to push deeper into the southern US around February 5-7th. However, the western US and Plains will likely remain near or warmer than usual through February 12th, keeping national heating demand from jumping too high.

Temperatures

According to AccuWeather.com, readings in New York will bottom at 5 degrees Fahrenheit on February 2nd, 22 below usual, and are expected remain cooler than normal through February 7th. Chicago will see the mercury plunge to as low as 11 degrees on February 2nd, 8 beneath the average, and will also remain colder than usual through February 7th.

Down South, Houston will range between 55 and 61 degrees tomorrow, compared to the average 46-64, and will be mostly seasonal on February 4th at 44-62 degrees. On the West Coast, the high in Los Angeles on February 1st will be 77 degrees, with readings expected to peak in the mid and high 70s for the better part of the month.

Pivot points

According to Binary Tribune’s daily analysis, March natural gas futures’ central pivot point stands at $2.772. In case the contract penetrates the first resistance level at $2.871 per million British thermal units, it will encounter next resistance $3.024. If breached, upside movement may attempt to advance to $3.123 per mBtu.

If the energy source drops below its first support level at $2.619 per mBtu, it will next see support at $2.520. If the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.367 per mBtu.