Natural gas trading outlook: futures hover near 2-1/2-year lows on weather, stockpiles

Natural gas rose on Friday but hovered near the lowest in 2-1/2 years after the EIA reported a smaller-than-expected drop in US natural gas stockpiles, while forecasts called for warmer-than-usual weather across the majority of the US next week.

Natural gas for delivery in March rose by 1.19% to $2.631 per million British units by 9:50 GMT, having shifted in a daily range of $2.632-$2.593. The contract fell 2.33% yesterday to $2.600, having earlier dropped to $2.578, the lowest since August 2012. Prices are down 2.1% for the week so far, headed for an tenth weekly loss in eleven.

The Energy Information Administration reported on Thursday that US natural gas inventories fell by 115 billion cubic feet in the seven days through January 30th, below analysts’ projections for a withdrawal in the range of 117-123 bcf. This compared to the five-year average of 165 bcf, while inventories declined by 259 bcf during the comparable period a year earlier.

Total gas held in US storage hubs amounted to 2.428 trillion cubic feet, narrowing the deficit to the five-year average stockpiles of 2.457 trillion to 1.2%, or 29 bcf, from 3.0% a week earlier. The surplus to the year-ago storage of 1.960 trillion cubic feet expanded to 23.9% from 14.6% during the preceding period.

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 over the North and East are factored in. However, this weekend and next week’s warm-up over the central, southern and western US is likely to lead to a much thinner withdrawal for the following report due at February 19th. Supplies through the third week of February basically stand a real chance of turning deficits to the five-year average into surpluses.

According to NatGasWeather.com, natural gas demand in the US will become moderate through February 12th, with a warm weather trend for the western US over the next seven days, while the Great Lakes and Northeast turn colder.

The Midwest and Northeast remain engulfed by cold weather, with lows in the single digits and below zero, while the West continues to enjoy warm and dry weather, apart from the coastal states which are pummeled by heavy rains and high levels of snow.

Much warmer readings are beginning to spread over the southern and central US, with highs expected to range between the upper 60s and lower 80s the next few days, significantly reducing national heating demand. The Northeast and Great Lakes will be hit by a new notable weather system on Sunday into Monday, carrying snow and wintry cold conditions, and other systems will follow.

Late next week, the western and central US will continue to enjoy near or warmer-than-usual temperatures, NatGasWeather.com reported, while the East and Midwest remain dominated by colder-than-usual readings. However, the truly cold Canadian which will keep readings over the Northeast and Great Lakes at 10-25 degrees below usual will remain confined to those regions, leaving the rest of the country out of harms way.

Temperatures

According to AccuWeather.com, readings in New York on February 8th will range between 32 and 40 degrees Fahrenheit, compared to the average 28-40, but will be become lower than seasonal through the middle of February. Chicago will enjoy seasonal weather with readings ranging between 21 and 35 degrees, but lows will drop to as much as 6 degrees on February 12th.

Down South, temperatures in Houston will range between 55 and 75 degrees on February 8th, above the usual 47-65, but will ease to slightly below usual betwee nFebruary 13th and February 22nd. On the West Coast, the high in Los Angeles will be 75 degrees, 7 above usual, and readings are expected to max out in the 70s and low 80s through February 22nd.

Pivot points

According to Binary Tribune’s daily analysis, March natural gas futures’ central pivot point stands at $2.625. In case the contract penetrates the first resistance level at $2.673 per million British thermal units, it will encounter next resistance at $2.745. If breached, upside movement may attempt to advance to $2.793 per mBtu.

If the energy source drops below its first support level at $2.553 per mBtu, it will next see support at $2.505. If the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.433 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.