Natural gas trading outlook: futures hold near 1-month high on warm weather

Natural gas was steady on Tuesday, holding close below a 1-month high touched on Monday, as forecasts called for very warm weather across most of the US during the next couple of weeks, including over the typically cooler north-eastern regions.

Natural gas for delivery in August traded 0.03% lower at $2.863 per million British thermal units at 08:18 GMT, shifting in a daily range between $2.881 and $2.854. The contract surged 3.4% yesterday to $2.864, having earlier risen to $2.883 which was the highest since June 17th.

According to NatGasWeather.com, natural gas demand in the US will be high compared to normal through July 19th. Strong high pressure has established over the central and southern US, resulting in highs in the upper 90s to 100s over the Great Plains, Texas and Southeast, which will drive the nation’s strongest cooling demand.

The Great Lakes and northeastern US will cool a bit the next few days 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.

Any cooler systems that enter the US will be confined to the Northwest and Northeast, essentially leaving the remaining portion of the country very warm to hot and 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 through next week, while the interior West will be very warm as well.

The bullish sentiment is expected with fair certainty to persist through the end of the month, with focus now turning to whether cooler systems could bring more comfortable conditions to the eastern US early August.

Temperatures

According to AccuWeather.com, readings in New York will peak at 81-82 degrees Fahrenheit the next four days, compared to the average 84, followed by a warm-up to seasonal and slightly warmer for the rest of the month. Active weather will cause wide temperature fluctuations in Chicago the next seven days, with highs ranging between the low 70s and as much as 90 degrees, before settling afterwards near or slightly below the average of 84 degrees.

Down South, Houston will peak at 95-97 degrees through July 22nd, above the usual 92-93, before easing to seasonal for the rest of the month. On the West Coast, Los Angeles will enjoy comfortable weather as highs max out at 79-81 degrees through July 19th, below the normal 83-84, followed by a warm-up to seasonal the following week.

Inventories

Thursdays stockpiles gain 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 week’s widespread warmth and the subsequent high cooling demand will lead to a much leaner build for the July 23rd EIA report, with estimates pointing to a build of slightly below 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.

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.

Pivot points

According to Binary Tribune’s daily analysis, August natural gas futures’ central pivot point stands at $2.845. In case the contract penetrates the first resistance level at $2.902 per million British thermal units, it will encounter next resistance at $2.941. If breached, upside movement may attempt to advance to $2.998 per mBtu.

If the energy source drops below its S1 level at $2.806 per mBtu, it will next see support at $2.749. In case the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.710 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.