Natural gas futures extend gains on warmer weather outlook

Natural gas rose for a second day on Tuesday, supported by extended forecasts calling for widespread very warm weather across the US next week and ahead of this Thursdays expected below-average inventory gain.

Natural gas for delivery in September traded 1.64% higher at $2.793 per million British thermal units at 09:30 GMT, shifting in a daily range of $2.794-$2.752. The contract rose 1.2% on Monday to $2.748 after it fell 2.1% last week.

Hot temperatures will continue to engulf much of the western, central and southern US this week, spurring locally high cooling demand for natural gas, NatGasWeather.com said. However, overall demand will be lower compared to last week as weather systems with showers and thunderstorms track across the Great Lakes and Northeast, carrying below-normal temperatures that would limit local cooling demand to moderate-low. The Northwest will also be cooler due to passing weather systems, but the Plains and Southwest will remain hot.

Very warm to hot weather will continue to engulf the western, southern and central US next week as well, according to NatGasWeather.com. But more importantly, the ridge of high pressure anchored over Texas will regain some of its lost ground this weekend and going into next week, which will ease the recently established bearish weather sentiment or even shift it into bullish. It remains of utmost importance how the weather trend develops in the second half of August as this would be the last good opportunity for summer heat to impact inventory builds before the second shoulder season begins.

Temperatures

According to AccuWeather.com, the high in New York today will be 90 degrees Fahrenheit, and 87 tomorrow, compared to the usual 84, before dropping down to the upper 70s and low 80s through the third week of August. Chicago will see temperatures peak in the low 80s the next nine days, followed by a few-degree cooling.

Down South, Texas City will see readings max out in the upper 90s and low 100s through August 18th, compared to the average 93, before dropping into the lower 90s for the rest of the month. To the West, Sacramento will reach 82 degrees today, 10 below usual, followed by a warm-up to the upper 80s and 90s.

Inventories

The Energy Information Administration reported last Thursday that US natural gas inventories rose by 52 billion cubic feet in the week ended July 24th, slightly below analysts’ median estimate of a 54-bcf gain but above the five-year average increase of 48 bcf for the period. Total gas held in US storage hubs amounted to 2.880 trillion cubic feet, expanding a surplus over the five-year average of 2.795 trillion to 3.0% from 2.9% a week earlier.

This Thursday’s report will most likely show a build below the average due to the tracked period’s high-to-very-high natural gas demand. Early estimates call for an inventory increase of about 43 bcf during the seven days ended July 31st, compared to the five-year average build of 53 bcf and the year-ago one of 83 bcf.

However, this week’s cooling across the Midwest and Northeast will lead to another above-average inventory gain to follow, albeit not by much. The August 13th report will likely show 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.

Pivot points

According to Binary Tribune’s daily analysis, September natural gas futures’ central pivot point stands at $2.747. In case the contract penetrates the first resistance level at $2.786 per million British thermal units, it will encounter next resistance at $2.825. If breached, upside movement may attempt to advance to $2.864 per mBtu.

If the energy source drops below its S1 level at $2.708 per mBtu, it will next see support at $2.669. In case the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.630 per mBtu.

In weekly terms, the central pivot point is at $2.772. The three key resistance levels are as follows: R1 – $2.839, R2 – $2.961, R3 – $3.028. The three key support levels are: S1 – $2.650, S2 – $2.583, S3 – $2.461.