Natural gas trading outlook: investors eye government supply data

Natural gas was steady on Wednesday following Tuesdays sharp gains, with investors focus aimed at tomorrows expectedly bearish supply report on the back of widespread mild weather across the US.

Natural gas for delivery in June traded 0.07% higher at $2.899 per million British thermal units at 07:45 GMT, shifting in a daily range of $2.911-$2.884. The contract surged 3.4% on Tuesday to $2.897, reversing Mondays 2.7% loss.

Natural gas rose on Tuesday as investors positioned ahead of an expected long string of large stockpiles builds, coupled with a drop in daily production due to maintenance and cooler conditions across the North. However, widespread warmth as of this weekend deemed any excessive gains unsustainable, with investors eyeing a record build tomorrow.

According to NatGasWeather.com, natural gas demand in the US will be very low compared to normal through May 19th, with bearish weather headwinds set to persist the week after.

The Great Lakes and Northeast have been engulfed by below-normal temperatures to drive somewhat stronger heating demand as overnight lows fall into the 40s and 30s. Cooler readings have also spilled into northern Texas, limiting cooling demand as highs drop into the 70s and 60s. A weather system over Texas and the southern Plains will bring additional showers and thunderstorms the next few days, while the Southeast remains very hot.

The West enjoyed a warm start to the week, but as it progresses, arriving Pacific weather systems will cause a round of cooling, while high pressure will build over the southern and eastern US late this week, lifting highs back up in the 70s and 80s.

Active weather in a typical spring fashion will continue next week as well, with showers and thunderstorms across the country. The South and East will become very warm as readings rise a few degrees above usual, while the West remains slightly cooler than normal due to passing Pacific weather systems. A strong spring system will track through the countrys northern regions mid-week, lowering temperatures a few degrees, but they should still remain near normal.

Readings

According to AccuWeather.com, the high in New York on May 14th will be 71 degrees Fahrenheit, 1 above usual, with readings set to remain near the average through the end of the month. Chicago will peak at 58 degrees today, 11 below normal, before jumping to 77-79 degrees on May 15-17th.

Down South, readings in Texas City will max out in the low-mid 80s through May 21st, hovering near the average. On the West Coast, the high in Los Angeles tomorrow will be 66 degrees, 8 below usual, with maximum temperatures set to remain several degrees below normal through May 26th.

Inventories

The Energy Information Administration reported last Thursday that US natural gas stockpiles rose by 76 billion cubic feet in the week ended May 1st, an inch above analysts’ median projections for a 75-bcf increase. Total gas held in US storage hubs amounted to 1.786 trillion cubic feet, narrowing a deficit to the five-year average of 1.853 trillion to 3.6%, or 67 bcf, from 4.2% the previous week. Inventories were at a surplus of 71.1% compared to year-ago stockpiles.

Tomorrow’s report will reflect a much larger gap to the average, likely around +125 bcf, as temperatures even across the North warmed up last week. Moreover, with mild readings expected to continue, keeping both heating and cooling demand in check, triple-digit builds will probably extend into June before summer cooling demand kicks in. 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.

The report after, due out on May 21st, will likely reflect a slightly smaller inventory build, as compared to the average, due to this week’s brief period of cooling across the north-central US. The five-year average stockpiles gain for the seven days ended May 15th is 89 bcf, while inventories rose by 106 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 $2.871. In case the contract penetrates the first resistance level at $2.957 per million British thermal units, it will encounter next resistance at $3.017. If breached, upside movement may attempt to advance to $3.103 per mBtu.

If the energy source drops below its S1 level at $2.811 per mBtu, it will next see support at $2.725. In case the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.665 per mBtu.

In weekly terms, the central pivot point is at $2.826. The three key resistance levels are as follows: R1 – $2.942, R2 – $3.003, R3 – $3.119. The three key support levels are: S1 – $2.765, S2 – $2.649, S3 – $2.588.