Natural gas trading outlook: futures drop on mild weather

Natural gas fell for a third day on Monday ahead of a brief warm-up across the Northeast, while the rest of the US continues to enjoy mostly seasonal or slightly warmer weather. Investors eyed this weeks inventory report by the EIA, expected to show the first build for the season.

Natural gas for delivery in April traded 2.30% lower at $2.722 per million British thermal units at 9:22 GMT, shifting in a daily range of $2.756-$2.721. The contract fell 0.96% on Friday to settle the week 1.7% higher at $2.786 per mBtu.

According to NatGasWeather.com, natural gas demand in the US will be low-to-moderate compared to normal through March 28th, with a neutral weather trend for the following seven days, apart from the East where slightly cooler conditions will give way to warmer temperatures on April 2-4th.

A strong cold blast that brought colder-than-normal conditions to the Northeast over the weekend will persist through Monday, keeping overnight lows in the teens and 20s, before giving way to a brief warm-up that will push highs into the 50s through Thursday. However, cooler conditions will be quickly reestablished as Canadian weather systems return on Friday.

The rest of the US will continue to enjoy warm conditions with highs in the 60s through 80s. The Northwest will see cooler readings and snow, while the rest of the West remains warm and dry. The Southwest and Texas will see the mercury peak in the upper 80s and 90s.

Weather systems carrying rain, snow and cooler-than-usual temperatures will continue to sweep across the north-eastern US next week, before giving way to milder conditions mid-week as high pressure builds. The West will remain mainly warm and dry as the week progresses, apart from the occasional cooler weather systems across the Northwest, while the central and southern US remain near-normal before warming up late next week.

According to AccuWeather.com, New York will see temperatures range between 34 and 44 degrees on March 24th, compared to the average 37-52, and will remain below-usual through the end of March. Chicago will range between 27 and 35 degrees on March 24th, below the normal 34-50, and will remain colder-than-usual through march 29th before warming up nicely in the 50s and occasional 60s.

Down South, the high in Houston on March 25th will be 79 degrees Fahrenheit, 5 above usual, with readings set to hover near seasonal levels over the next two weeks. On the West Coast, Los Angeles will see temperatures max out at 92-95 degrees on March 26-27th, compared to the average 71, before easing to the upper 70s and lower 80s the following seven days.

Supplies

The Energy Information Administration reported on Thursday that US natural gas stockpiles fell 45 billion cubic feet in the week ended March 13th, matching the five-year average drop but falling short of analysts’ median estimate of -48 bcf. Total gas held in US storage hubs amounted to 1.467 trillion cubic feet, 13.3% below the five-year average inventory level of 1.692 trillion and 52.8% above year-ago stockpiles at 960 trillion cubic feet.

This week’s supply report will likely register a small inventory build, around 20 billion cubic feet, as most of the US enjoyed seasonal and warmer weather last week, while a cold blast in the Northeast had a limited reach. The five-year average withdrawal for the week ended March 20th is 19 billion cubic feet, while the year-ago storage drop was -56 bcf.

The following report, due on April 2nd, may reflect a near-average or slightly thinner inventory decline as widespread seasonal and warmer weather persists, while the north-eastern US sees a cold break mid-week. The five-year average withdrawal for the week ending March 27th is -22 bcf, while gas in storage declined by 71 bcf a year ago. Inventories are unlikely to gain much ground on deficits over the next three supply reports as cold Canadian air lurks across the border.

Pivot points

According to Binary Tribune’s daily analysis, April natural gas futures’ central pivot point stands at $2.822. In case the contract penetrates the first resistance level at $2.883 per million British thermal units, it will encounter next resistance at $2.979. If breached, upside movement may attempt to advance to $3.040 per mBtu.

If the energy source drops below its S1 level at $2.726 per mBtu, it will next see support at $2.665. If the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.569 per mBtu.

In weekly terms, the central pivot point is at $2.800. The three key resistance levels are as follows: R1 – $2.921, R2 – $3.055, R3 – $3.176. The three key support levels are: S1 – $2.666, S2 – $2.545, S3 – $2.411.