Natural gas trading outlook: futures hover near 1-month high on warm conditions

Natural gas was little changed in early European trade on Thursday, holding near Tuesdays 1-month high, as weather forecasts saw no significant overnight changes, calling for very warm to hot conditions over much of the US.

Natural gas for delivery in August traded 0.10% lower at $2.915 per million British thermal units at 08:18 GMT, shifting in a daily range of $2.930 – $2.912. The contract surged 2.75% on Wednesday to $2.918. It touched $2.934 on Tuesday, the highest since June 17th.

The Energy Information Administration is expected to report at 14:30 GMT today a stockpile gain exceeding the one from last Thursday as pleasant temperatures over large parts of the country through most of the tracked period, coupled with the long Fourth of July weekend, kept national cooling demand at moderate levels. Median projections call for a build of 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, even if the bearish inventory gain is confirmed, current and near-term warm conditions across the majority of the US are expected to keep the market supported. According to NatGasWeather.com, natural gas demand in the US will be high compared to normal through July 22nd, with a hot weather trend set to persist over the southern two thirds of the country through the end of the July.

Hot temperatures will expand their reach into the Great Lakes and Mid-Atlantic through the weekend, reaching the upper 80s and lower 90s over the northern US, while Texas, the Plains, and the South and Southeast peak in the mid 90s to 100s. A weak weather system will bring thunderstorms and a slight cooling to the Great Lakes and Northeast late Monday through Wednesday but the ridge of high pressure will fend off any attempts to reach further south. As that system fizzles late next week, high pressure will once again strengthen in the region through the weekend, beefing temperatures up.

The current 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 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.

The following two builds will also be much leaner than the one from today as overall very warm to hot temperatures will last going into the final week of the month. Conditions will be most uncomfortable from eastern Texas across the South and Southeast where highs will peak in the mid 90s to 100s, NatGasWeather.com said. The Great Lakes and Northeast will also warm up above normal at times, but passing Canadian weather systems will bring some comfortable cooling at times. In any case, any cooler systems that enter the US will be confined mostly to the Northwest and Northeast, essentially leaving the remaining portion of the country very warm to hot and driving strong cooling demand.

Readings

According to AccuWeather.com, readings in New York will peak at 82 degrees Fahrenheit on July 18th, 2 below usual, followed by a jump to seasonal levels and a few degrees higher through July 25th. Chicago will fail to exceed 77 degrees today, 7 beneath normal, before temperatures max out at 88-89 degrees the following three days.

Down South, the high in Houston tomorrow will be 95 degrees, 3 above usual, and will jump to 97-98 degrees through July 21st. 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 $2.893. In case the contract penetrates the first resistance level at $2.954 per million British thermal units, it will encounter next resistance at $2.990. If breached, upside movement may attempt to advance to $3.051 per mBtu.

If the energy source drops below its S1 level at $2.857 per mBtu, it will next see support at $2.796. In case the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.760 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.