Natural gas trading outlook: futures extend slide

Natural gas continued its decline on Tuesday as forecasting agencies kept calling for warm weather across the majority of the US, but not hot enough to stop stockpiles from scoring larger-than-average builds in the foreseeable future.

Natural gas for delivery in July traded 1.40% lower at $2.878 per million British thermal units at 7:53 GMT, shifting between $2.912 and $2.868. The contract tumbled 2.51% on Friday to $2.919, settling the week 4.9% lower and ending three straight weeks of gains.

Very active weather with showers and thunderstorms will continue across many regions of the US the next few weeks, NatGasWeather.com said, but temperatures will gradually increase as well, boosting demand for cooling. Cooler Canadian systems will still pressure temperatures across the northern US at times, but with none of them being exceptionally cold, this will spell the end of any real heating demand until the next fall/winter season.

Very warm temperatures will persist over the South and East this week, driving moderately strong cooling demand, while heavy showers and thunderstorms continue over the Plains and Texas. A late-week cooling will follow over the north-central US, including northern Texas, easing cooling demand to some extent. The nationwide warm-up will continue as June arrives, with more regions of the country becoming warmer than usual, although it is not anticipated to impact the markets that much as a series of above-average inventory builds extends through the next weeks.

Supplies

The Energy Information Administration reported last Thursday that US natural gas stockpiles rose by 92 billion cubic feet in the week ended May 15th, mismatching analysts’ projections for a 96-97-bcf gain, although still above the five-year average build of 89 bcf. 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.

This weeks report will likely reflect a larger gap to the average, as compared to last Thursdays 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.

The report after, due out on June 4th, is also expected to show a larger-than-average stockpiles gain, with the five-year average build for the week ended May 29th pegged at 92 bcf, while supplies rose by 118 bcf a year earlier.

Temperatures

According to AccuWeather.com, readings in New York will peak in the low-mid 80s through May 30th, compared to the average 74-75, before easing back to the mid-high 70s the next ten days. Highs in Chicago will be in the low 80s the next three days, above the usual 74, followed by a drop to the mid 60s between May 30th and June 1st.

Down South, temperatures in Houston will likely max out at 84-88 degrees through June 7th, compared to the average 88-89. On the West Coast, the high in Los Angeles tomorrow will be 73 degrees, 2 below usual, followed by a warm-up into the upper 70s and low 80s afterwards.

Pivot points

According to Binary Tribune’s daily analysis, July natural gas futures’ central pivot point stands at $2.950. In case the contract penetrates the first resistance level at $2.987 per million British thermal units, it will encounter next resistance at $3.055. If breached, upside movement may attempt to advance to $3.092 per mBtu.

If the energy source drops below its S1 level at $2.882 per mBtu, it will next see support at $2.845. In case the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.777 per mBtu.

In weekly terms, the central pivot point is at $2.994. The three key resistance levels are as follows: R1 – $3.075, R2 – $3.231, R3 – $3.312. The three key support levels are: S1 – $2.838, S2 – $2.757, S3 – $2.601.