Natural gas trading outlook: futures steady ahead of EIA data

Natural gas was little changed on Wednesday as investors weighed forecasts for widespread hot weather in the US against projections for a much larger than average inventory build in Thursdays EIA report.

Natural gas for delivery in August traded 0.04% higher at $2.841 per million British thermal units at 08:22 GMT, shifting in a daily range of $2.853 – $2.832. The contract fell 0.8% on Tuesday to $2.840, ending three sessions of gains.

The Energy Information Administration is expected to report tomorrow a stockpile gain exceeding the one from last Thursday 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, any extensive downside movement driven by a bearish inventory report is expected to be capped by current and near-term bullish weather developments.

According to NatGasWeather.com, natural gas demand in the US will be high compared to normal through July 21st. Strong high pressure continues its reign 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 eastern US will cool a bit the next couple of days as a weak weather system tracks through with showers and thunderstorms. However, as it exits off the Atlantic Coast late Thursday, 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.

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. The interior West will remain unaffected by the Pacific systems that continue to arrive to the Northwest, remaining very warm to hot as well.

The current weeks 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 about 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.

Temperatures

According to AccuWeather.com, readings in New York will peak at 80 degrees Fahrenheit on July 18th, 4 below usual, followed by a jump to seasonal or slightly higher levels through July 25th. Active weather will cause wide temperature fluctuations in Chicago the next seven days, with highs ranging between the low 70s and upper 80s for the rest of the month.

Down South, Houston will peak at 96-98 degrees through July 21st, above the usual 92, before easing a few degrees the next several days. On the West Coast, Los Angeles will enjoy comfortable weather as highs max out at 81-82 degrees through July 18th, compared to the average 83-84, but will afterwards jump to seasonal for most of the remainder of the month.

Pivot points

According to Binary Tribune’s daily analysis, August natural gas futures’ central pivot point stands at $2.865. In case the contract penetrates the first resistance level at $2.909 per million British thermal units, it will encounter next resistance at $2.977. If breached, upside movement may attempt to advance to $3.021 per mBtu.

If the energy source drops below its S1 level at $2.797 per mBtu, it will next see support at $2.753. In case the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.685 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.