Natural gas futures hover near 3-week highs on warmer weather outlook, EIA data eyed

Natural gas fell on Thursday ahead of what is expected to be a larger-than-average gain in US inventories, but prices kept close to a three-week high touched on Wednesday as investors eyed weather data showing widespread very warm to hot conditions the next two weeks.

Natural gas for delivery in September traded 0.61% lower at $2.913 per million British thermal units at 09:37 GMT, shifting in a daily range of $2.931-$2.906. The contract surged 3.1% on Wednesday to $2.931 per mBtu, having earlier jumped to $2.934, the highest since July 23rd.

Todays report by the Energy Information Administration is expected to bring a higher inventory gain compared to last week as much more comfortable conditions across the northern US during the tracked period are factored in. Stockpiles are expected to have increased by 55 billion cubic feet during the week ended August 7th, according to analysts median estimate, although NatGasWeather.com predicts an injection of 59-60 bcf. This compares to the five-year average of 48 bcf, while supplies rose by 79 bcf a year ago.

Data last Thursday showed that US natural gas inventories rose by 32 billion cubic feet in the week ended July 31st, bringing the total gas held in US storage hubs to 2.912 trillion cubic feet and narrowing a surplus over the five-year average of 2.848 trillion to 2.2% from 3.0% a week earlier.

A reading today above 60 bcf would be considered quite bearish, and one in the lower 50s – quite bullish. However, even if the report comes in bearish, any sell-offs will likely be short-lived as market sentiment is currently dictated by bullish weather sentiment. The central and southern US remain engulfed by very warm to hot temperatures, with Texas and the South being the nation’s hottest spot with highs in the mid-90s to 100s, although a gradual cooling has begun.

Meanwhile, a cooler weather system with showers and thunderstorms that has been recently moving through the eastern US will exit off the Atlantic Coast the next few days, NatGasWeather.com said, allowing for hot high pressure over the south-central US to expand across the rest of the East this weekend, beefing temperatures up. The Southwest will also warm up into next week, including much of California, while the northern Rockies are affected by cooler systems.

Next weeks inventory report, due out on August 20th, will likely show a slightly higher inventory gain compared to todays number due to continued cooler conditions across the North this week, but very strong cooling demand over the southern half of the US will keep the build close to the average. Next Thursdays 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.

It will be of utmost importance for investors to see for how long the hot high pressure will remain established over the East, with very warm conditions currently expected to last at least through late next week. In any case, the South will remain engulfed by highs in the mid 90s going in the fourth week of August and the southern Great Lakes and Mid-Atlantic regions will become quite warm as well, while comfortable near-normal weather will establish over the northern Rockies and interior West.

Readings

According to AccuWeather.com, New York will enjoy today seasonal temperatures with highs failing to exceed 83 degrees, before jumping into the upper 80s and lower 90s through August 24th. Chicago will peak at 86-89 degrees the next four days, above the usual 82, followed by a drop to seasonal or slightly lower through the end of the month.

Down South, highs in Houston have begun their descent from the 100s, projected at 99 degrees on August 14th, and will gradually drop to the lower 90s over the coming week. On the West Coast, Los Angeles will be quite toasty as highs reach 91-94 degrees through August 16th, followed by a cooling to the mid 80s.

Pivot points

According to Binary Tribune’s daily analysis, September natural gas futures’ central pivot point stands at $2.906. In case the contract penetrates the first resistance level at $2.959 per million British thermal units, it will encounter next resistance at $2.988. If breached, upside movement may attempt to advance to $3.041 per mBtu.

If the energy source drops below its S1 level at $2.877 per mBtu, it will next see support at $2.824. In case the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.795 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.