Natural gas trading outlook: futures head for second weekly loss on inventories, weather

Natural gas remained on track to post a hefty weekly loss following a surprisingly bearish stockpiles report by the EIA on Thursday, while weather forecasts continued to call for overall comfortable near-term conditions across the US.

Natural gas for delivery in July traded 0.33% higher at $2.715 per million British thermal units at 07:53 GMT, shifting in a daily range of $2.722 – $2.708. The contract tumbled almost 5% on Thursday to $2.706 and is down 7% for the week so far. It slid 4.9% the previous week which was its first weekly drop in four.

The Energy Information Administration reported yesterday that natural gas inventories in the US rose by 112 billion cubic feet in the week ended May 22nd, sharply exceeding analysts median estimate for a 99-bcf gain. The figure was also well above the five-year average build for the week of 95 billion cubic feet and the year-ago increase of 113 bcf.

Total gas held in US storage hubs amounted to 2.101 trillion cubic feet, narrowing a deficit to the five-year average of 2.119 trillion to 0.8%, or 18 bcf, from 1.7% a week earlier. Stockpiles were also at a surplus of 54.0% to the year-ago level of 1.364 trillion cubic feet.

Next week’s supplies report, due out on June 4th, is expected to show another larger-than-average inventory 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.

Overall bearish weather sentiment continued to weigh on the market as well. Natural gas demand in the US is expected to remain low compared to normal through June 4th, according to NatGasWeather.com, paving the way for additional hefty inventory builds.

Very warm temperatures continue to engulf the southern and eastern US, with widespread highs in the upper 80s and lower 90s. Readings remain quite comfortable across the western and central US, limiting demand for heating and cooling as highs hover in the 70s, while a stronger system brings some cooling to the Northeast and Great Lakes during the weekend. This will spur some light heating demand in the region as highs in Chicago drop in the 60s, but will also curb cooling demand.

Active weather with showers and thunderstorms will continue across the US next week, NatGasWeather.com said, but most of the country will become warmer than usual with widespread highs in the 80s, especially the East and West, while it gets pretty hot in Texas. It still remains unclear how the trend over the North will develop after June 7th. If high pressure manages to hold strong and keep new cool blasts from entering across the border, it would lead to above-normal temperatures and boost cooling demand, a bullish development, while the opposite scenario would cause very comfortable Spring conditions and extend bearish sentiment.

Temperatures

According to AccuWeather.com, New York will see a brief period of cooling between May 31st and June 3rd, with June 2nds high projected at 68 degrees Fahrenheit, 8 below usual, before 80s return shortly after. Chicago will peak at 80 degrees today, 6 above usual, followed by a three-day drop into the low 60s, after which above-normal temperatures will reestablish.

Down South, highs in Houston will range between 86 and 88 degrees the next ten days, near the average of 88-89. On the West Coast, Los Angeles will reach 79 degrees today, 4 above usual, and will remain near the average or slightly above through June 6th.

Pivot points

According to Binary Tribune’s daily analysis, July natural gas futures’ central pivot point stands at $2.751. In case the contract penetrates the first resistance level at $2.800 per million British thermal units, it will encounter next resistance at $2.894. If breached, upside movement may attempt to advance to $2.943 per mBtu.

If the energy source drops below its S1 level at $2.657 per mBtu, it will next see support at $2.608. In case the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.514 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.