Natural gas trading outlook: futures extend losses on bearish weather

Natural gas fell for a fourth day on Tuesday amid bearish weather forecasts and expectations for another larger-than-average inventory build.

Natural gas for delivery in June traded 0.72% lower at $2.496 per million British thermal units at 7:42 GMT, holding in a daily range of $2.509-$2.492. The contract settled 2.1% lower on Monday at $2.514.

According to NatGasWeather.com, natural gas demand in the US will be low compared to normal the next few days, before dropping to very low by the weekend, with an increasingly bearish trend to continue afterwards.

The southeastern US will see heavy showers and thunderstorms over the next days as a weather system tracks through, bringing a period of slight cooling. The Midwest and northeastern US will see overnight lows drop into the 30s and lower 40s 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 east-central US expected to be slightly warmer than usual.

“With warmer May weather patterns that we have been expecting still on track, we continue to view weathers pattern as quite bearish,” NatGasWeather.com said.

Readings

According to AccuWeather.com, temperatures in New York will be near the average of 65-66 degrees through May 2nd, before establishing in the lower 70s afterwards. Chicago will see highs at 51-55 degrees through the end of the month, followed by a warm-up into the mid 60s and low 70s as of May 1st.

Down South, Houston will peak at 75 degrees tomorrow, 7 below normal, before establishing in the low 80s afterwards. On the West Coast, the high in Los Angeles will be 88 degrees Fahrenheit on April 28-29th, compared to the average 74, before easing back into the mid 70s as of May 2nd.

Inventories

The Energy Information Administration said last Thursday 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.

This weeks EIA report is expected to show another above-normal inventory gain, around 85-90 billion cubic feet, due to last week’s 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.

Pivot points

According to Binary Tribune’s daily analysis, June natural gas futures’ central pivot point stands at $2.509. In case the contract penetrates the first resistance level at $2.536 per million British thermal units, it will encounter next resistance at $2.559. If breached, upside movement may attempt to advance to $2.586 per mBtu.

If the energy source drops below its S1 level at $2.486 per mBtu, it will next see support at $2.459. In case the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.436 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.