Natural gas trading outlook: futures edge up on cooler Northeast, EIA data in focus

Natural gas jumped 1% in early European trading on Thursday as a late-season chilly cold blast sweeps across the Northeast, but the imminent return of warmer temperatures and projections for inventories to soon flip into a surplus to the five-year average capped gains.

Natural gas for delivery in June traded 0.93% higher at $2.942 per mBtu at 8:10 GMT, shifting in a daily range of $2.950-$2.920. The contract slid 1.1% on Wednesday to $2.915, a third straight daily drop, and is down 2.4% for the week so far.

Todays inventory data by the Energy Information Administration is expected to show that US natural gas stockpiles rose by 96-97 billion cubic feet during the week ended May 15th, less than initially expected. Still, if confirmed, this would help draw supplies closer to flipping into a surplus to the average. The five-year average gain for the week is 89 bcf, while inventories rose by 106 bcf a year earlier. A build of over 100 bcf would be considered as quite bearish, while one of less than 93 bcf – quite bullish.

The government agency reported last week that US natural gas inventories rose by 111 billion cubic feet in the week ended May 8th, below analysts’ consensus forecast of 116 bcf as a drop in production due to maintenance and stronger exports offset low demand. Total gas held in US storage hubs amounted to 1.897 trillion cubic feet, narrowing the deficit to the five-year average of 1.935 trillion to 2.0%, or 38 bcf.

Next week’s report, due out on May 28th, will likely reflect a larger gap to the average, as compared to today’s data. The five-year average build for the week ended May 22nd is 95 billion cubic feet, while supplies rose by 113 bcf during the comparable period a year earlier.

Weather

Bearish headwinds are expected to continue as, despite the active Spring pattern, weather conditions across the majority of the country remain comfortable. According to NatGasWeather.com, natural gas demand in the US will be very low to low compared to normal through May 27th, with no significant changes for the following seven days as well.

The last in a recent series of cool weather systems will track across the Northeast today and Friday, pushing lows into the 30s and 40s, before giving way to much warmer conditions during the weekend. The east-central US, as well as Texas and the interior West, remain under the effect of weather systems accompanied by showers and thunderstorms. The Southeast remains the warmest part of the US, driving the most significant demand for cooling, as highs peak in the upper 80s and lower 90s.

Following this weekends nice warm-up across the Midwest and Northeast, fresh Canadian systems will spill cooler air during next week, but with a much lesser impact compared to this weeks blasts.

Active weather will continue through the end of the month, in a typical Spring fashion, keeping temperatures over the North near normal and a few degrees lower over the Midwest. However, the southern and eastern US will become very warm, including Texas and the southern Plains, driving stronger national demand for cooling. The West will be slightly warmer than usual toward the end of the month, NatGasWeather.com said, but temperatures will ease back to near-normal as June arrives.

Readings

According to AccuWeather.com, the high in New York on May 23rd will be 69 degrees Fahrenheit, 4 below normal, before establishing in the upper 70s to mid 80s the next five days. Chicago will peak at 64 degrees tomorrow, 8 below normal, followed by a recovery to seasonal and slightly higher levels afterwards.

Down South, readings in Houston will max out at 82 degrees today and tomorrow, before rising to the mid 80s for the rest of May. On the West Coast, highs in Los Angeles will range between 68 and 70 degrees through May 23rd, compared to the usual 74-75, followed by a slight warm-up through the end of the month.

Pivot points

According to Binary Tribune’s daily analysis, June natural gas futures’ central pivot point stands at $2.946. In case the contract penetrates the first resistance level at $2.990 per million British thermal units, it will encounter next resistance at $3.065. If breached, upside movement may attempt to advance to $3.109 per mBtu.

If the energy source drops below its S1 level at $2.871 per mBtu, it will next see support at $2.827. In case the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.752 per mBtu.

In weekly terms, the central pivot point is at $2.946. The three key resistance levels are as follows: R1 – $3.106, R2 – $3.197, R3 – $3.357. The three key support levels are: S1 – $2.855, S2 – $2.695, S3 – $2.604.