Natural gas trading outlook: futures drop on mid-week cooling

Natural gas fell on Monday amid forecasts for an unseasonably cool weather system over the north-central US to curb cooling demand later this week, but losses were limited by the expected return of very warm to hot weather afterwards.

Natural gas for delivery in September traded 0.71% lower at $2.781 per million British thermal units at 08:09 GMT on Monday, shifting in a daily range of $2.788-$2.765. The contract rose 0.5% on Friday to $2.801, settling the week 0.1% higher.

According to NatGasWeather.com, natural gas demand in the US will be high compared to normal today and tomorrow as hot high pressure that established over much of the US during the weekend resulted in widespread highs in the upper 80s to 100s, including the Northeast, California, and Northwest cities.

Texas and the South wont start the week as hot as last one as a weather system with showers and thunderstorms passes through. More importantly, another system will bring below-normal temperatures to the Midwest in the middle of the week and will push even deeper, bringing cooler conditions to northern Texas and the South and dropping national cooling demand to moderate for a few days.

However, the cooling wont last long as high pressure makes haste to regain lost ground on Friday and into the following week, once again resulting in very warm to hot temperatures across most of the US that will beef cooling demand back to high. It will be then up to the ridge of high pressures ability to hold strong over the eastern and southern US to determine weather sentiment through the rest of August as some weather models predict uncomfortably warm conditions, while others suggest a cooler pattern under the influence of additional Canadian weather systems.

Inventories

This weeks inventory report by the Energy Information Administration is expected to show another above-average inventory build as continued comfortable conditions across the northern US during the tracked period managed to negate the effect very strong cooling demand over the southern half of the country. The government agency is expected to report a stockpiles gain of about 70 billion cubic feet for the week ended August 14th, compared to the five-year average of 54 bcf, while supplies rose by 86 bcf a year earlier.

Next weeks report, however, will likely bring a smaller-than-usual inventory build as very warm to hot temperatures across the US the past weekend and early this week offset the cooler system that is expected to spin up across the north-central US. Supplies are projected to rise by about 50 bcf during the week ended August 21st, below the five-year average increase of 61 bcf and the year-ago one of 77 bcf.

Last Thursdays data showed an above-average injection of 65 billion cubic feet for the seven days ended August 7th which brought the total gas held in US storage hubs to 2.977 trillion cubic feet, expanding a surplus over the five-year average of 2.896 trillion to 2.8% from 2.2% a week earlier.

Readings

According to AccuWeather.com, New York will be very toasty tomorrow as temperatures peak at 96 degrees Fahrenheit, 13 above usual, and will remain in the mid-upper 80s through August 26th, before dropping into the comfortable upper 70s and low 80s afterwards. Chicago will peak at 87 degrees today, above the usual 82, followed by a drop to the upper 70s and low 80s for the rest of the month.

Down South, readings in Houston will max out in the low-mid 90s this week and the next, still very warm but well below last weeks 100s. On the West Coast, Los Angeles will peak at the seasonal 84 degrees tomorrow and highs will remain near the average for the remainder of August.

Pivot points

According to Binary Tribune’s daily analysis, September natural gas futures’ central pivot point stands at $2.806. In case the contract penetrates the first resistance level at $2.831 per million British thermal units, it will encounter next resistance at $2.861. If breached, upside movement may attempt to advance to $2.886 per mBtu.

If the energy source drops below its S1 level at $2.776 per mBtu, it will next see support at $2.751. In case the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.721 per mBtu.

In weekly terms, the central pivot point is at $2.839. The three key resistance levels are as follows: R1 – $2.896, R2 – $2.992, R3 – $3.049. The three key support levels are: S1 – $2.743, S2 – $2.686, S3 – $2.590.