Natural gas trading outlook: futures return to losses on mild weather forecasts

Natural gas rallied on Tuesday on short-term forecasts calling for cold weather across the northern US but swung back to losses on Wednesday as extended outlooks pointed to seasonal or warmer readings across most of the US. Investors also eyed tomorrows EIA report which is expected to show a thinner-than-average inventory decline.

Natural gas for delivery in March fell 1.09% to $2.724 per million British thermal units by 9:26 GMT, having shifted in a daily range of $2.779-$2.710. The contract rose by 2.76% on Tuesday to $2.754, its first advance in five days.

According to NatGasWeather.com, natural gas demand in the US will be moderate-to-high compared to normal through February 10th, with a neutral weather trend for the following seven days.

A cold blast with frigid temperatures will hit the northern US today, pushing lows across the Great Lakes and Northeast into the single digits and below 0 degrees for several days. Cooler temperatures will also reach the southern US, inducing stronger heating demand. Apart from the coastal states which will see high snow accumulations, the West will see dry and warmer-than-usual weather throughout the week.

The central US will enjoy higher temperatures this weekend, including over Texas, as highs reach into the mid and high 70s, while a new weather system tracks across the Northeast and Great Lakes.

Next week, the western and central regions of the country will continue to experience near or warmer-than-usual temperatures, NatGasWeather.com reported, including over Texas. The Midwest and eastern US will continue to see weather systems track over, bringing rain, snow and slightly cooler-than-normal temperatures, but the most threatening frigid Canadian air is not expected to push deeper south than the Great Lakes and Northeast.

Temperatures

According to AccuWeather.com, readings in New York on February 6th will range between 15 and 27 degrees, compared to the average 28-40, and will remain slightly lower than usual through the middle of February. Chicago will see the mercury plunge as low as 0 degrees today, 19 below usual, before warming up to the above-average 28-34 degrees in three days.

Down South, Houston will see highs range between 56 and 62 degrees on February 4-6th, slightly below the seasonal 64-65, before peaking at 70-76 degrees during the following three days. On the West Coast, the high in Los Angeles tomorrow will be 77 degrees, 9 above usual, and readings are expected to max out in the 70s through the middle of the month.

Inventories

The Energy Information Administration reported last 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. Analysts expect a decline in the range of 117-123 billion cubic feet. The five-year average withdrawal for the week ended January 30th is 165 bcf, while inventories declined by 259 bcf during the comparable period a year earlier.

This week’s drop, to be reflected in February 12th’s report, is likely to be much closer to the average as the recent and upcoming cold blasts are factored in, but next week’s warm-up is likely to lead to a much thinner withdrawal for the following seven-day period.

Pivot points

According to Binary Tribune’s daily analysis, March natural gas futures’ central pivot point stands at $2.729. In case the contract penetrates the first resistance level at $2.808 per million British thermal units, it will encounter next resistance $2.862. If breached, upside movement may attempt to advance to $2.941 per mBtu.

If the energy source drops below its first support level at $2.675 per mBtu, it will next see support at $2.596. If the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.542 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.