Natural gas trading outlook: futures extend gains on warmer weather

Natural gas rose for a third day on Monday amid forecasts for very warm weather across the US, including the countrys typically cooler north-eastern regions.

Natural gas for delivery in August traded 1.62% higher at $2.815 per million British thermal units at 11:46 GMT, shifting in a daily range between $2.821 and $2.787. The contract rose 1.6% on Friday to $2.770, trimming its weekly decline to 1.8%.

According to NatGasWeather.com, natural gas demand in the US will be high compared to normal through July 18th as strong high pressure has established over the central and eastern US, resulting in highs in the mid-80s to lower-90s for much of the northern US. Hot weather has engulfed the Great Plains, Texas and Southeast, which will drive the nations strongest cooling demand as readings locally hit the 100 degrees.

The Great Lakes and northeastern US will cool a bit today through the middle of the week as a weak weather system tracks through with showers and thunderstorms. However, as it exits off the Atlantic Coast, it will be immediately followed by a rebound in high pressure through the weekend, leaving the Midwest and Mid-Atlantic with highs near 90 degrees Fahrenheit. It should be closely monitored whether this hot ridge will continue its dominance beyond this weekend, but it is highly likely, NatGasWeather.com said.

Still, even if cooler Canadian air manages to bring moderate conditions to the far northern US next week, the remaining portion of the country will remain very warm to hot, driving strong cooling demand. Temperatures over the central and southern US, including Texas and Florida, will max out in the mid-90s and lower 100s, while the interior West will be very warm as well, with only the Northwest being slightly cooler than normal as Pacific weather systems track inland.

Readings

According to AccuWeather.com, the high in New York on July 13th will be 86 degrees Fahrenheit, 2 above usual, and will remain near or slightly above the average through the end of the month. Chicago will peak at 80 degrees tomorrow, 5 below normal, with highs over the next two weeks set to vary between the 70s and 80s amid active weather.

Down South, Houston will peak in the mid 90s through July 25th, compared to the average 92-93, while on the West Coast, Los Angeles will enjoy comfortable weather as highs max out at 79-82 degrees through July 20th, below the usual 83, followed by a warm-up to seasonal the following week.

Inventories

The Energy Information Administration reported last Thursday that US natural gas inventories rose by 91 billion cubic feet in the seven days ended July 3rd, exceeding projections for a jump of 86 bcf and also well above the five-year average inventory gain of 75 bcf. Total gas held in US storage hubs amounted to 2.668 trillion cubic feet, expanding a surplus to the five-year average supplies of 2.623 trillion to 1.7% from 1.1% a week earlier.

This weeks inventory reeading is expected to exceed the one from last week as pleasant temperatures over large parts of the country through most of the tracked period kept national cooling demand at moderate levels. Early estimates call for a build of around 95 bcf during the seven days ended July 10th, well above the five-year average gain for the period of 71 bcf, while supplies added 105 bcf during the comparable period a year earlier.

However, this weeks widespread warmth and the subsequent high cooling demand will lead to a much leaner build for the July 23rd EIA report, with initial estimates pointing to a build of about 55-60 bcf for the week ended July 17th, compared to the five-year average gain of 53 bcf and the year-ago one of 92 bcf.

Pivot points

According to Binary Tribune’s daily analysis, August natural gas futures’ central pivot point stands at $2.767. In case the contract penetrates the first resistance level at $2.810 per million British thermal units, it will encounter next resistance at $2.851. If breached, upside movement may attempt to advance to $2.894 per mBtu.

If the energy source drops below its S1 level at $2.726 per mBtu, it will next see support at $2.683. In case the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.642 per mBtu.

In weekly terms, the central pivot point is at $2.757. The three key resistance levels are as follows: R1 – $2.870, R2 – $2.970, R3 – $3.083. The three key support levels are: S1 – $2.657, S2 – $2.544, S3 – $2.444.