Natural gas trading outlook: futures ease with cooling in focus

Natural gas fell in early European trading on Tuesday as investors weighted very warm to hot weather across the US in the near term against extended forecasts calling for a cooling across the Midwest and Northeast.

Natural gas for delivery in September traded 0.36% lower at $2.778 per million British thermal units at 08:16 GMT, holding in a daily range of $2.797 – $2.775. The contract rose 0.5% on Monday to $2.788 after it closed the previous week 3.4% lower.

Natural gas demand in the US will be very high compared to normal today and tomorrow, NatGasWeather.com said, before easing to high through August 3rd. Hot temperatures continue to engulf most of the country and will do so through the end of the week, with highs in the upper 80s to lower 90s over the Great Lakes and Northeast, while readings across the central and southern US, including Texas, peak in the mid 90s to 100s. Florida will cool a bit for several days due to a slow moving weather system with showers, while another one passes through the intermountain West.

As previously forecast, Canadian systems will hit the Midwest and northeastern US late this week and early next, spilling showers and seasonal temperatures, while the dome of high pressure shifts into the western US. This will result in the region warming up substantially, with highs over California reaching the 90s and 100s.

Strong high pressure will continue to dominate the western and southern regions of the country in the first week of August, NatGasWeather.com said, but the central US will enjoy near-normal conditions. The Great Lakes and East will be cooler than usual, especially after August 6th, as weather systems with showers track through, resulting in a return to above-average inventory builds after the one next week comes below usual.

Inventories

Simply put, uncomfortable weather across most of the US this week and the accompanying very high to high cooling demand will lead to a smaller-than-average inventory build for the August 6th report, probably around 40 bcf, compared to the five-year average gain for the week ended July 31st of 53 bcf and the year-ago one of 83 bcf.

It will then be up to Canadian weather systems ability to push deeper into the US to determine near-term sentiment. With weather models showing a fairly strong push of cooler air into the north-eastern US, the August 13th report will likely once again show an inventory gain above the average, albeit not far off. Initial estimates point to a build of about 55 bcf for the week ended August 7th, compared to the average 48 bcf and the year-ago one of 79 bcf.

As for this Thursdays report, the EIA will probably print a smaller inventory gain compared to last Thursday due to the tracked period’s continued very warm to hot temperatures, particularly over the southern half of the country. Initial estimates point to a build of slightly over 50 bcf for the seven days ending July 24th, compared to the five-year average increase of 48 bcf, while supplies rose by 88 bcf a year earlier.

Temperatures

According to AccuWeather.com, New York will peak at the toasty 95 degrees on July 30th, 11 above normal, and highs will remain near 90 degrees through August 6th, followed by a cooling to the upper 70s and low 80s. Readings in Chicago will max out in the mid 80s over the next six days, before dropping to the upper 70s and low 80s through the middle of the month.

Down South, Houston will be reaching 100-103 degrees through August 3rd, well above the usual 93, followed by a drop to the more comfortable lower 90s the next two weeks. On the West Coast, Los Angeles will be peaking at the mid-upper 80s through August 6th, before easing to the upper 70s and low 80s the following nine days.

Pivot points

According to Binary Tribune’s daily analysis, September natural gas futures’ central pivot point stands at $2.780. In case the contract penetrates the first resistance level at $2.825 per million British thermal units, it will encounter next resistance at $2.862. If breached, upside movement may attempt to advance to $2.907 per mBtu.

If the energy source drops below its S1 level at $2.743 per mBtu, it will next see support at $2.698. In case the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.661 per mBtu.

In weekly terms, the central pivot point is at $2.835. The three key resistance levels are as follows: R1 – $2.897, R2 – $3.020, R3 – $3.082. The three key support levels are: S1 – $2.712, S2 – $2.650, S3 – $2.527.