Natural gas trading outlook: futures extend drop on warmer weather

Natural gas fell for a fourth straight day, hitting a fresh 2-1/2-year low, as extended weather forecasts called for seasonal or warmer temperatures across most of the US through mid-February, while the EIA is expected to report another lean inventory withdrawal this Thursday.

Natural gas for delivery in March fell by 1.37% to $2.654 per million British thermal units by 9:42 GMT, having shifted in a daily range between $2.707 and $2.632, the lowest since August 2012. The energy source slid for a third day on Friday, settling the week 9.2% lower at $2.691 per million British thermal units.

According to NatGasWeather.com, natural gas demand in the US will be moderate-to-high through February 7th, but with a slightly warmer weather trend for the following seven days.

A strong weather system will track across the Great Lakes and into the Northeast today, with snowfall accumulations of 4-8″. Another cold blast will hit the Midwest and Northeast after a short mid-week break, sending lows into the single digits and below zero for several days, with below-freezing temperatures again pushing in the Southeast. Meanwhile, the West will remain warmer than usual, apart from the coastal states.

Next week, the central and western parts of the US will be dominated by near or warmer-than-normal temperatures as high pressure dominates, NatGasWeather.com said, including over Texas. Weather systems will continue to move across the Midwest and into the East, but they will fail to tap frigid Canadian air, leaving the regions with mild mid-winter conditions.

Temperatures

According to AccuWeather.com, readings in New York will bottom at 8 degrees Fahrenheit on February 5th, 20 below usual, and will range between 24 and 34 degrees three days later, compared to the average 28-40. Chicago will see the mercury plunge to as lows as 3 degrees on February 4th, 16 below normal, before warming up to the above-seasonal 28-36 degrees on February 7th.

Down South, temperatures in Houston will range between 46 and 59 degrees on February 4th, compared to the average 46-64, but will peak at 70-71 degrees on February 7th-8th. On the West Coast, the high in Los Angeles on February 5th will be 76 degrees, compared to the average of 68, before reaching 83 degrees on February 8-9th. Readings are expected to max out in the 70s for most of the month.

Inventories

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.

This week’s report is also expected to reflect a draw below the average as the recent widespread warmth is factored in, especially with highs over the central and southern US that reached well into the 70s last week. 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.

Pivot points

According to Binary Tribune’s daily analysis, March natural gas futures’ central pivot point stands at $2.687. In case the contract penetrates the first resistance level at $2.737 per million British thermal units, it will encounter next resistance $2.783. If breached, upside movement may attempt to advance to $2.833 per mBtu.

If the energy source drops below its first support level at $2.641 per mBtu, it will next see support at $2.591. If the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.545 per mBtu.

In weekly terms, the central pivot point is at $2.765. The three key resistance levels are as follows: R1 – $2.892, R2 – $3.094, R3 – $3.221. The three key support levels are: S1 – $2.563, S2 – $2.436, S3 – $2.234.