Natural gas trading outlook: futures drop for a third day ahead of EIA data

Natural gas slid on Thursday, erasing its weekly advance, amid forecasts for widespread mild temperatures across the US and ahead of a government inventory report expected to show a slightly larger than average build.

Natural gas for delivery in June slid 0.29% to $2.768 per million British thermal unit by 7:46 GMT, having varied in a daily range between $2.778 and $2.762 per mBtu. The contract fell 0.14% on Wednesday to $2.776.

The Energy Information Administration is expected to report later today an inventory gain slightly above the average as cooler conditions across the North last week induced a round of stronger heating demand. Analysts median estimate is for a build of around 75 billion cubic feet for the week ended May 1st, compared to the five-year average of +68 billion cubic, while stockpiles gained 75 bcf during the comparable period a year earlier. An increase of above 82-83 bcf would be considered quite bearish, while a gain of less than 70 bcf, near the average, would provide some support.

The government agency said last week that US gas inventories rose by 81 billion cubic feet in the week ended April 24th, below analysts’ median estimate of +85 bcf, which sent the energy source soaring. Another somewhat bullish report would support the market, but any excessive gains will likely be capped by bearish weather headwinds.

According to NatGasWeather.com, natural gas demand in the US will be very low compared to normal through May 13th, with bearish weather factors set to continue the week after.

Pleasant temperatures have engulfed most of the country, with highs in the uppers 60s through lower 80s over the North and 70s and 80s down South. Many regions continue to experience typical Spring weather with showers and thunderstorms, including Texas, the Rockies and the Plains. The West saw a comfortable start to the week but a Pacific weather system pushing inland will send temperatures several degrees below normal for a few days. The countrys eastern regions will continue to experience warmer-than-usual conditions during the weekend before a cooler Canadian system arrives early next week, lowering readings by a few degrees.

As next week progresses, active weather in a typical Spring pattern will continue over much of the US, with the majority of the country expected to enjoy near-normal conditions, keeping both heating and cooling demand curbed. The eastern US has the best chances of being slightly warmer than normal, NatGasWeather.com said, while Texas and the Southwest are a few degrees cooler as weather systems with showers and thunderstorms pass through. However, higher-than-average readings are expected to return around May 20th.

Next week’s inventory report, due out on May 14th, will likely reflect a larger gap to the average, as temperatures even across the North warmed up this week. The five-year average inventory gain for the seven days ended May 8th is +82 bcf, while stockpiles rose by 101 bcf a year earlier.

Readings

According to AccuWeather.com, temperatures in New York will max out at 81-84 degrees on May 8-12th, before dropping to the lower 70s the following five days. Chicago will peak at 84 degrees on May 7th, 17 above the average, followed by a cooling to the upper 60s and lower 70s through May 17th.

Down South, Texas City will reach 83-85 degrees through May 13th, compared to the average 81-82, before easing a few degrees afterwards. On the West Coast, highs in Los Angeles will be at 65-67 degrees through may 10th, compared to the average of 74, before rising to the mid 70s over the following week.

Pivot points

According to Binary Tribune’s daily analysis, June natural gas futures’ central pivot point stands at $2.782. In case the contract penetrates the first resistance level at $2.816 per million British thermal units, it will encounter next resistance at $2.857. If breached, upside movement may attempt to advance to $2.891 per mBtu.

If the energy source drops below its S1 level at $2.741 per mBtu, it will next see support at $2.707. In case the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.666 per mBtu.

In weekly terms, the central pivot point is at $2.686. The three key resistance levels are as follows: R1 – $2.890, R2 – $3.005, R3 – $3.209. The three key support levels are: S1 – $2.571, S2 – $2.367, S3 – $2.252.