Natural gas trading outlook: futures ease ahead of EIA supply data

Natural gas fell in early European trading on Thursday as investors weighed short-term forecasts calling for widespread very warm to hot weather across the US versus an expected above-average inventory gain last week.

Natural gas for delivery in September traded 0.14% lower at $2.860 per million British thermal units at 08:22 GMT, shifting in a daily range of $2.895-$2.857 per mBtu. The contract jumped 1.7% on Wednesday to $2.864, rising for a third day, and is up 3% for the week so far.

Todays EIA report will probably print a smaller inventory gain compared to last Thursday due to the tracked period’s continued very warm to hot temperatures, especially over the southern half of the country. However, it will likely still exceed the average, sounding a bearish tone. Initial estimates point to a build of 54 bcf for the seven days ended July 24th, compared to the five-year average increase of 48 bcf, while supplies rose by 88 bcf a year earlier.

Even if the report pressures the energy source to the downside, losses will likely by limited by weather-driven support. According to NatGasWeather.com, natural gas demand in the US will be high compared to normal through August 5th, with high pressure set to keep in its grip most of the country into early next week, apart from the upper Great Lakes and interior Northeast which will be affected by cooler weather systems. The central and southern US, including Texas, will continue to suffer highs in the mid 90s to 100s going into the first week of August, while Florida will cool a bit due to a tropical system, but with a limited effect. The West has also become hot with highs in the 90s to 100 reaching the California coastal cities.

Last weekend and this weeks uncomfortable weather across most of the US and the accompanying very high to high cooling demand will lead to a smaller-than-average inventory build for the August 6th report, probably little over 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.

Strong high pressure will continue to dominate the western, central and southern US through next week as well, NatGasWeather.com said, while cooler weather systems tracking across the Midwest and Northeast will push readings below normal. Recent data have been calling for a stronger push of cooler air deeper into the eastern US late next week, which would shift overall sentiment to bearish. However, the unfolding of these events still remains uncertain and there are scenarios where the ridge of hot high pressure manages to hold much more ground than expected, warranting closer monitoring.

It will all be up to the cooler Canadian systems ability to push deeper into the US to determine near-term sentiment. With weather models currently showing a fairly strong push of cooler air into the north-eastern US as next week progresses, 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 53 bcf for the week ended August 7th, compared to the average 48 bcf and the year-ago one of 79 bcf.

Readings

According to AccuWeather.com, New York will peak at 88 degrees on July 31st, 3 above normal, and highs will remain in the upper 80s to 90 through August 7th, followed by a cooling to the upper 70s and low 80s. Readings in Chicago will max out at 86-87 degrees today and tomorrow, before dropping to the upper 70s and low 80s the following two weeks.

Down South, Houston will be toasty through August 4th as highs hover at 100-103 degrees, compared to the usual 93, followed by a drop to seasonal the week after. To the West, Sacramento will peak at 100 degrees today, 8 above the average, and highs will remain in the low-mid 90s through the third week of the month.

Pivot points

According to Binary Tribune’s daily analysis, September natural gas futures’ central pivot point stands at $2.852. In case the contract penetrates the first resistance level at $2.882 per million British thermal units, it will encounter next resistance at $2.901. If breached, upside movement may attempt to advance to $2.931 per mBtu.

If the energy source drops below its S1 level at $2.833 per mBtu, it will next see support at $2.803. In case the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.784 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.