Natural gas trading outlook: futures drop on mild April weather

Natural gas fell on Monday following Thursdays sharp gains as overall bearish weather sentiment persisted after forecasts saw no significant change over the weekend, calling for a mild second and third week of April.

Natural gas for delivery in May traded 1.62% lower at $2.669 per million British thermal units at 8:45 GMT, shifting in a daily range of $2.698-$2.665. The energy source surged 4.15% on Thursday to $2.713, settling the week 2.8% higher.

The Energy Information Administration reported on Thursday that US natural gas stockpiles fell by 18 billion cubic feet during the seven days ended March 27th, exceeding analysts’ consensus estimate of -10 bcf. This compared to the five-year average withdrawal for the week of -22 bcf, while gas in storage declined by 71 bcf a year ago.

Total gas held in US hubs amounted to 1.461 trillion cubic feet, narrowing a deficit to the five-year average inventories of 1.651 trillion by only 0.1% from a week earlier to 11.5%. The surplus over year-ago stockpiles expanded to 75.4% from 63.6% the preceding week.

However, overall bearish weather sentiment limited gains and sent the power-station fuel falling on Monday. According to NatGasWeather.com, natural gas demand in the US will be low compared to normal through April 11th, with a neutral weather trend for the following seven days.

Warmer readings will gradually establish over the southern and eastern US as the current week progresses. A weather system over Texas and the Southeast will bring showers and strong thunderstorms over the next few days, while a stalled cold front accumulates snowfall near the Canadian border. A cooler weather system will track across the Great Lakes and Northeast late this week through next weekend, while the intermountain West will see chilly weather with rain and snow as systems track from the Pacific Ocean, NatGasWeather.com said.

Active weather will persist across the US during the third week of April as weather systems with showers and thunderstorms track through. The central, southern and eastern US will enjoy near or somewhat warmer-than-usual weather, while the West is slightly cooler due to Pacific systems with rain and snow.

“As we have been expecting, the latest weather data continues to show a mild and active pattern will rule the US through the third week of April, which we consider to be fairly bearish for weather sentiment,” NatGasWeather.com said in a report to clients. “In addition, without any truly frigid Canadian air spilling into the US over the next several weeks, heating demand will be mainly light.”

This Thursday’s stockpile report by the EIA will likely bring a small inventory build instead of an average decline due to last week’s seasonal and slightly warmer conditions. The five-year average inventory drop for the seven days ended April 3rd is -2 billion cubic feet, while stockpiles declined by 8 bcf during the comparable period a year earlier.

The following report, due on April 16th, will likely bring a slightly larger than average build due to this weeks widespread conditions. The five-year average inventory gain for the week ended April 10th is +35 billion cubic feet, while supplies rose by 22 bcf during the same week a year earlier.

Readings

According to AccuWeather.com, New York will see temperatures peak at 65 degrees Fahrenheit on April 7th, 7 above normal, before dropping to 45-48 degrees on April 9-10th and reestablishing in the 60s afterwards. Readings in Chicago will max out at 52 degrees on April 7-8th, before surging to 69 degrees on April 9th, 13 above usual.

Down South, highs in Houston will be at 81-86 degrees through April 13th, compared to the average 77-78, before easing to the mid-high 70s the following four days. Los Angeles will be slightly cooler than usual as temperatures max out at 67 degrees, below the normal 72, and will remain in the mid-high 60s through April 11th, followed by a warm-up into the high 70s and low 80s.

Pivot points

According to Binary Tribune’s daily analysis, May natural gas futures’ central pivot point stands at $2.674. In case the contract penetrates the first resistance level at $2.758 per million British thermal units, it will encounter next resistance at $2.802. If breached, upside movement may attempt to advance to $2.886 per mBtu.

If the energy source drops below its S1 level at $2.630 per mBtu, it will next see support at $2.546. In case the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.502 per mBtu.

In weekly terms, the central pivot point is at $2.672. The three key resistance levels are as follows: R1 – $2.760, R2 – $2.808, R3 – $2.896. The three key support levels are: S1 – $2.624, S2 – $2.536, S3 – $2.488.