Natural gas trading outlook: futures hover near 2-week highs on warm weather

Natural gas was little changed in early European trading on Wednesday following two days of sharp gains as very warm weather across many US regions spurred stronger cooling demand for natural gas, while investors also eyed Thursdays inventory data for any surprises.

Natural gas for delivery in July traded 0.25% lower at $2.839 per million British thermal units at 08:10 GMT, shifting in a daily range between $2.880, the highest in two weeks, and $2.827. The contract rose 5.2% on Tuesday to $2.846 after it added 4.4% the previous day.

According to NatGasWeather.com, natural gas demand in the US will rise to moderate compared to normal through June 16th, and locally high over the Southeast, with additional warming expected across the country’s southern and eastern regions during the following week.

The eastern, western and southern US will continue to experience highs in the upper 80s to 90s this week, driving moderately strong cooling demand. The Southeast, including Florida, will drive the nation’s strongest natural gas demand as temperatures reach the mid 90s to mid 100s. The far northern US will remain under the influence of Canadian weather systems tracking through, NatGasWeather.com said, bringing a slight cooling to the Great Lakes and Northeast. Showers and thunderstorms in many regions will keep providing some cooling, but temperatures will overall be higher than last week, leading to a somewhat thinner inventory build to be reported on June 18th.

Overall active weather will continue during the third week of June and into the fourth as well. The eastern, western and southern US will remain very warm to hot as readings hover near the average or several degrees higher, while the north-central US continues to feel the effects of Canadian systems that will keep readings near normal and quite comfortable for the season.

The main focus remains on the weather developments around June 20th, with longer-term forecasts now pointing to quite warm widespread conditions and unless cooler Canadian systems manage to infiltrate the Midwest and Northeast, instead of just sending bouts of cooler air, weekly inventory builds will likely fall below 100 billion cubic feet.

Temperatures

According to AccuWeather.com, New York will be warmer than usual through June 13th with highs in the low-mid 80s, compared to the average 78-79, followed by a few-degree cooling to near-average the next seven days. Chicago will reach 86 degrees Fahrenheit today, 6 above usual, and will experience warmer-than-usual weather the following two weeks.

Down South, Houston will peak at 92 degrees today and tomorrow, 2 above normal, before easing a few degrees the following ten days. On the West Coast, highs in Los Angeles will be in the upper 70s through the third week of June, matching the average 77-79 degrees for the period.

Inventories

The Energy Information Administration reported last Thursday that US natural gas stockpiles increased by 132 billion cubic feet in the week ended May 29th, surpassing analysts’ median projections for a 121-bcf build. Total gas held in US storage hubs amounted to 2.233 trillion cubic feet, flipping into a surplus of 1.0% to the five-year average of 2.211 trillion from a 0.8% deficit a week earlier. Supplies were also at a surplus of 50.7% to the year-ago inventories of 1.482 trillion.

Tomorrow’s report will also reflect a much larger than normal build to expand the surplus further, with estimates pointing to a build of around 115 billion cubic feet. The five-year average inventory gain for the week ended June 5th is 89 bcf, while stockpiles rose by 109 bcf a year earlier.

The report after, due out on June 18th, will show another above-average build, which however will be much closer to the average. Early estimates call for a build of slightly above 100 bcf for the week ended June 12th, compared to the five-year average inventory gain of 87 billion cubic feet and the year-ago inventory increase of 112 bcf.

Pivot points

According to Binary Tribune’s daily analysis, July natural gas futures’ central pivot point stands at $2.797. In case the contract penetrates the first resistance level at $2.899 per million British thermal units, it will encounter next resistance at $2.951. If breached, upside movement may attempt to advance to $3.053 per mBtu.

If the energy source drops below its S1 level at $2.745 per mBtu, it will next see support at $2.643. In case the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.591 per mBtu.

In weekly terms, the central pivot point is at $2.623. The three key resistance levels are as follows: R1 – $2.691, R2 – $2.791, R3 – $2.859. The three key support levels are: S1 – $2.523, S2 – $2.455, S3 – $2.355.