Natural gas trading outlook: futures steady on outlook for warmer weather

Natural gas was little changed for a second day on Wednesday as investors weighed a heavy inventory withdrawal, likely to be reported on Thursday, against extended forecasts calling for warmer weather across the majority of the US.

Natural gas futures for delivery in April traded 0.14% higher at $2.893 per million British thermal units at 9:04 GMT, shifting in a daily range of $2.911-$2.881. The contract slid 0.14% on Tuesday to $2.889.

According to NatGasWeather.com, natural gas demand in the US through March 3rd will be very high, but becoming high, with a neutral weather trend for the West over the following seven days, while the central-eastern US turns warmer around March 10th.

The latest polar blast will hit the north-central parts of the country today and extend its reach south and east tomorrow, spurring very strong heating demand as readings across the entire US, apart from the West, slid to 15-30 degrees below normal. The core of the coldest air situated over the Midwest and Northeast will keep overnight lows in the single digits and below zero, while the West also sees some cooling this week.

Late in the weekend, temperatures over the southern and eastern US will warm up but a new weather system will tap cold Canadian air into the central regions a few days later.

Weather systems carrying rain, snow and below-freezing temperatures will continue to track across the US next week, keeping readings across the central, northern and eastern US slightly below normal. However, weather patterns may see a significant shift around March 9-10th, leading to a warm-up across the entire US, apart from the North.

Enter deficit

The Energy Information Administration reported last Thursday that US natural gas inventories fell by 111 billion cubic feet in the week ended February 13th, well below the five-year average decline of 180 bcf. Total gas held in US storage hubs amounted to 2.157 trillion cubic feet, forming a surplus of 2.8% to the five-year average of 2.099 trillion from last week’s deficit of 0.5%. The surplus over the year-ago inventory level of 1.479 trillion cubic feet expanded to 45.8% from 31.4% a week earlier.

The five-year-average surplus, however, is not expected to last long as last week’s widespread cold blasts across the northern, eastern and parts of the central US are factored in. This Thursday’s report is expected to show an inventory decline of around 240 billion cubic feet, almost twice the five-year average drop for the week of 131 billion cubic feet. Stockpiles fell by 117 bcf a year earlier.

Moreover, last weekend and this weeks widespread cold blasts would line up another significant inventory decline for the following week as average withdrawals continue to drop steeply, bearing the potential to bring inventories to well over 100 bcf below the average. The five-year average drop for the week ended February 27th is 115 bcf.

Temperatures

According to AccuWeather.com, readings in New York on February 27th will range between 10 and 28 degrees Fahrenheit, compared to the average 31-44, and will shift between 32 and 38 degrees on March 3rd. Temperatures are expected to establish above the average as of March 9th. Readings in Chicago will bottom at 0-2 degrees in the next two days, compared to the average 25, and will remain below usual through March 7th.

Down South, Houston will range between 36 and 54 degrees Thursday, compared to the average 51-68, before highs warm up to the mid 70s between March 1-3rd. On the West Coast, Los Angeles will peak at 73 degrees tomorrow, 4 above usual, before readings fall to 5-6 degrees below normal over the next week.

Pivot points

According to Binary Tribune’s daily analysis, April natural gas futures’ central pivot point stands at $2.901. In case the contract penetrates the first resistance level at $2.962 per million British thermal units, it will encounter next resistance $3.036. If breached, upside movement may attempt to advance to $3.097 per mBtu.

If the energy source drops below its first support level at $2.827 per mBtu, it will next see support at $2.766. If the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.692 per mBtu.

In weekly terms, the central pivot point is at $2.897. The three key resistance levels are as follows: R1 – $3.082, R2 – $3.191, R3 – $3.376. The three key support levels are: S1 – $2.788, S2 – $2.603, S3 – $2.494.