Natural gas trading outlook: futures head for weekly loss

Natural gas rose for a second day on Friday but headed for its first weekly drop in four as comfortable readings across the majority of the US kept both heating and cooling demand limited, extending a string of above-average inventory builds.

Natural gas for delivery in June traded 0.41% higher at $2.961 per million British thermal units at 8:14 GMT, shifting in a daily range of $2.970-$2.952. The contract rose 1.2% on Thursday following a somewhat bullish government inventory report to settle the day at $2.949 per mBtu, its first gain since last Friday. Prices are down 1.9% for the week so far.

The Energy Information Administration said yesterday that US natural gas stockpiles rose by 92 billion cubic feet in the week ended May 15th, below analysts projections for a 96-97-bcf gain. This compared to the five-year average build of 89 bcf, while inventories rose by 106 bcf a year earlier.

Total gas held in US storage hubs amounted to 1.989 trillion cubic feet, narrowing a deficit to the five-year average of 2.024 trillion to 1.7%, or 35 bcf, from 2.0% a week earlier. Supplies were at a surplus of 59.0% compared to a year earlier.

Next week’s report, due out on May 28th, will likely reflect a larger gap to the average, as compared to yesterdays data. Initial estimates point to a build of around 110 bcf during the week ended May 22nd, compared to the five-year average of 95 billion cubic feet, while supplies rose by 113 bcf during the comparable period a year earlier.

Bearish weather

Weather headwinds are expected to continue as, despite the active Spring pattern, 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 28th, 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, pushing overnight lows into Saturday into the 30s and 40s, before swiftly giving way to a significant warm-up during the weekend. The Plains, Texas and the interior West remain under the effect of weather systems accompanied by showers and thunderstorms. The Southeast continues to be 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 weekend’s 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 week’s blasts. Active weather will continue through the end of the month and early-June, in a typical Spring manner.

Temperatures over the North will hover near normal, while the western, southern and eastern US become very warm, driving much stronger national demand for cooling. This will be the most important period to watch in the near term as the establishment of widespread 80s and 90s might turn demand sentiment from bearish to neutral, or even bullish, coupled with increased volatility accompanying the expiration of the June contract on May 27th.

Readings

According to AccuWeather.com, temperatures in New York will peak at 75 degrees Fahrenheit on May 23rd, 2 above usual, before rising to 78 degrees on May 26th and into the 80s afterwards. Chicago will reach 74 degrees tomorrow, 2 above normal, followed by a warm-up in the upper 70s and low 80s the next six days.

Down South, readings in Houston will max out at 83 degrees tomorrow and will remain in the mid 80s for the rest of the month, compared to the average 87-88. On the West Coast, the high in Los Angeles tomorrow will be 70 degrees, 5 below usual, followed by a warm-up to the mid and upper 70s over the following two weeks.

Pivot points

According to Binary Tribune’s daily analysis, June natural gas futures’ central pivot point stands at $2.969. In case the contract penetrates the first resistance level at $3.018 per million British thermal units, it will encounter next resistance at $3.087. If breached, upside movement may attempt to advance to $3.136 per mBtu.

If the energy source drops below its S1 level at $2.900 per mBtu, it will next see support at $2.851. In case the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.782 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.