Natural gas trading outlook: futures extend drop on mild weather

Natural gas fell for a third day on Monday as weather forecasts saw no significant changes over the weekend, calling for overall mild weather across the US that would limit demand for the commodity to low.

Natural gas for delivery in June was down 1.52% at $2.529 per million British thermal units at 7:56 GMT, shifting in a daily range between $2.530 and $2.510. The contract was almost unchanged on Friday, settling 0.04% lower, after plunging 3.2% the previous session.

Thursdays sell-off came as the Energy Information Administration reported that US natural gas stockpiles rose by 90 billion cubic feet in the week ended April 17th, almost twice the five-year average gain of 46 bcf and slightly above analysts median projection of +88 bcf.

Total gas held in US storage hubs amounted to 1.629 trillion cubic feet, narrowing a deficit to the five-year average of 1.730 trillion to 5.8% from 8.6% a week earlier. Inventories were at a surplus of 82.6% compared to a year ago.

Expectations for additional hefty builds to come reinforced bearish sentiment. According to NatGasWeather.com, natural gas demand in the US will be moderate over the next several days, before trending lower.

The south-central US, including Texas, will see heavy showers and thunderstorms over the next days as a weather system tracks through and brings a period of slight cooling, before drifting southward as the week progresses. The Midwest and northeastern US will see overnight lows drop into the 30s and lower 40s, locally 20s, amid rain and snow showers.

However, higher temperatures will push into the southern Great Lakes and most of the eastern US later in the week, easing heating demand considerably, while the West remains dominated by high pressure with highs in the 70s and 80s.

Typical Spring weather will continue next week as well, with showers and thunderstorms across much of the country. Almost the entire US will enjoy near-normal temperatures, keeping both heating and cooling demand at bay, with only the central US expected to be slightly warmer than usual.

Thursdays inventory report by the EIA is expected to show another above-normal inventory gain, around 85-90 billion cubic feet, due to last weeks widespread mild weather. The five-year average build for the week ended April 24th is +55 bcf, while supplies rose by 77 bcf during the comparable period a year earlier.

The report after, due out on May 7th, will likely reflect a slightly larger-than-average inventory gain. Stockpiles rose on average by 68 billion cubic feet in the seven days ended May 1st, while gaining 75 bcf during the comparable period a year earlier.

Temperatures

According to AccuWeather.com, the high in New York on April 28th will be 66 degrees Fahrenheit, matching the average, before rising to 71 degrees on May 3rd. Chicago will see readings range between 38 and 54 degrees tomorrow, below the usual 46-64, followed by a warm-up to the seasonal 51-66 degrees on May 2nd.

Down South, Houston will peak at 72 degrees tomorrow, 9 below normal, before gradually warming up in the course of the week, expected to reach 83 degrees on May 2nd. On the West Coast, the high in Los Angeles will be 80-81 degrees Fahrenheit through April 30th, compared to the average 74, before easing back into the mid-upper 70s for a few days.

Pivot points

According to Binary Tribune’s daily analysis, June natural gas futures’ central pivot point stands at $2.574. In case the contract penetrates the first resistance level at $2.592 per million British thermal units, it will encounter next resistance at $2.617. If breached, upside movement may attempt to advance to $2.635 per mBtu.

If the energy source drops below its S1 level at $2.549 per mBtu, it will next see support at $2.531. In case the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.506 per mBtu.

In weekly terms, the central pivot point is at $2.597. The three key resistance levels are as follows: R1 – $2.639, R2 – $2.710, R3 – $2.752. The three key support levels are: S1 – $2.526, S2 – $2.484, S3 – $2.413.