Natural gas trading outlook: futures steady ahead of EIA data

Natural gas was little changed on Thursday as investors awaited the Energy Information Administrations weekly stockpiles report, expected to show a much larger than average build.

Natural gas for delivery in June traded at $2.937 per million British thermal units at 7:54 GMT, up 0.07% for the day, having shifted in a daily range of $2.952-$2.933. The contract rose 1.3% on Wednesday to $2.935 following a 3.4% gain the day before.

The energy source has recently been drawing support as a round of cooling over the North induced slightly higher heating demand, coupled with short covering and technical trading. However, with widespread mild temperatures set to dominate the US through the end of the month, gains are likely to be capped and even reversed as a series of large inventory builds begins with todays report.

The Energy Information Administration is expected to report that US natural gas inventories rose by around 125 bcf in the week ended May 8th, compared to the five-year average build of 82 bcf and the year-ago gain of 101 bcf.

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.

Last weeks data showed that US natural gas stockpiles rose by 76 billion cubic feet in the week ended May 1st, 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.

Weather

According to NatGasWeather.com, natural gas demand in the US will be very low compared to normal through May 20th, with a very warm outlook for the South over the following seven days, while the North warms up as well.

The recent round of cooling over the Great Lakes and Northeast will give way to warmer temperatures in the coming days, with readings rising into the 70s and upper 80s. Pacific weather systems tracking inland will lower temperatures across California and the Southwest, shifting high pressure over the southern and eastern US through early next week, followed by additional weather systems mid next week that will bring showers and thunderstorms. With readings remaining in a comfortable range through next week, both heating and cooling demand will be kept to a minimum.

Active weather in a typical spring fashion will continue through the end of the month, with showers and thunderstorms across the country. The South and East will become very warm as readings hover a few degrees above usual, while the West remains slightly cooler than normal due to passing Pacific weather systems, partially offsetting that effect on natural gas demand. Although the North will remain warm, weather systems tracking through will keep bringing periods of slight cooling, also bearish for the demand side, helping offset the moderate cooling demand over the southern US.

Readings

According to AccuWeather.com, the high in New York on May 15th will be 75 degrees Fahrenheit, 5 above usual, with readings set to remain slightly above the average through the end of the month. Chicago will peak at 66 degrees today, 4 below normal, before jumping to 78-81 degrees on May 15-17th, followed by a slight cooling.

Down South, readings in Texas City will max out in the low-mid 80s through May 19th, compared to the average of 82-83 degrees. On the West Coast, the high in Los Angeles tomorrow will be 65 degrees, 9 below usual, with maximum temperatures set to remain several degrees below normal through May 24th.

Pivot points

According to Binary Tribune’s daily analysis, June natural gas futures’ central pivot point stands at $2.921. In case the contract penetrates the first resistance level at $2.986 per million British thermal units, it will encounter next resistance at $3.037. If breached, upside movement may attempt to advance to $3.102 per mBtu.

If the energy source drops below its S1 level at $2.870 per mBtu, it will next see support at $2.805. In case the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.754 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.