Natural gas futures advance on hot weather outlook

Natural gas rose for a third day on Wednesday as investors focused on latest weather data showing a warmer trend over the majority of the US after August 20th, but gains were limited by expectations for tomorrows EIA report to show an inventory build above the average.

Natural gas for delivery in September traded 0.74% higher at $2.865 per million British thermal units at 08:46 GMT, shifting in a daily range of $2.868 – $2.852. The contract inched up 0.1% on Tuesday to $2.844, rebounding from an intraday low of $2.796.

A weather system with showers, thunderstorms and slightly cooler than usual temperatures continues its movement through the eastern US, NatGasWeather.com said, including briefly into the Southeast. The central and southern US remain engulfed by very warm to hot temperatures, with Texas and the South being the nations hottest spot with highs in the mid-90s to 100s, although a slight cooling will begin as of tomorrow and last for several days. This will keep local natural gas demand at high levels, while demand over the the northern US remains moderate.

Most of the US will again warm up late this weekend and into early next week, including the Great Lakes and Northeast, while the West will experience warmer weather as well, apart from the Rockies.

What will be most important to monitor is whether the ridge of high pressure manages to continue to dominate the southern and eastern US after August 20th or it will cede ground to cooler Canadian systems trying to push deeper into the US. Currently, the scales are tipped in favor of the dome of high pressure standing strong, but it is going to be close, NatGasWeather.com said, and thus will require close monitoring as temperatures could trend lower over the north-central US.

Readings

According to AccuWeather.com, the high in New York on August 14th will be 82 degrees Fahrenheit, 1 below usual, followed by a jump to the upper 80s and 90 degrees through August 25th. Readings in Chicago will peak at 78 degrees today, compared to the average 82, before rising to 85-90 degrees the next five days, followed by the return of seasonal or slightly lower temperatures.

Down South, Houston will suffer triple-digit highs for one last day as readings peak at 102 degrees, followed by a drop to the upper 90s the next three days and into the low-mid 90s for the rest of the month. On the West Coast, Los Angeles will peak at 86 degrees today, 2 above usual, followed by a jump to 91-93 degrees through August 16th.

Inventories

EIA data showed last Thursday that US natural gas inventories rose by 32 billion cubic feet in the week ended July 31st, reflecting very warm weather across almost the entire country during the tracked period. The build was below analysts’ projections for a 42 bcf gain and the five-year average build for the period of 53 bcf. Total gas held in US storage hubs amounted to 2.912 trillion cubic feet, narrowing a surplus over the five-year average of 2.848 trillion to 2.2% from 3.0% a week earlier.

Tomorrow’s build, however, will be much higher as cooler temperatures across the northern US last week are factored in. The report is expected to show an inventory increase of about 60 bcf for the week ended August 7th, exceeding the average 48 bcf, while supplies rose by 79 bcf a year ago.

The following report, due out on August 20th, will likely show a slightly higher inventory gain due to continued cooler conditions across the North, but very strong cooling demand over the southern half of the US will keep the build close to the average. Next week’s data will probably show an inventory gain of about 65 bcf for the week ended August 14th, compared to the five-year average increase of 54 bcf, while supplies rose by 86 bcf a year earlier.

Pivot points

According to Binary Tribune’s daily analysis, September natural gas futures’ central pivot point stands at $2.834. In case the contract penetrates the first resistance level at $2.871 per million British thermal units, it will encounter next resistance at $2.899. If breached, upside movement may attempt to advance to $2.936 per mBtu.

If the energy source drops below its S1 level at $2.806 per mBtu, it will next see support at $2.769. In case the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.741 per mBtu.

In weekly terms, the central pivot point is at $2.789. The three key resistance levels are as follows: R1 – $2.872, R2 – $2.945, R3 – $3.028. The three key support levels are: S1 – $2.716, S2 – $2.633, S3 – $2.560.