Natural gas trading outlook: futures steady with active weather in focus

Natural gas rose in early European trading on Tuesday, pausing a two-day drop, as investors weighed a cool weather system moving through the US Midwest and Northeast against strong cooling demand over the countrys southern and western regions.

Natural gas for delivery in October traded 0.34% higher at $2.665 per million British thermal units at 07:57 GMT, shifting in a daily range of $2.677 – $2.655. The contract fell 1.5% on Monday to $2.656, having earlier dropped to $2.641, the lowest since June 8th. It tumbled 3.2% on Friday to $2.697, settling the week 4.9% lower.

A fresh weather system with showers, thunderstorms and below-average temperatures is tracking across the Great Lakes and eastern US, resulting in highs in the upper 60s to 70s over the important consuming regions of the Midwest and Northeast, including Chicago. Cooler readings are also expected to briefly push into the southeastern US as the week progresses, NatGasWeather.com said, helping curb national natural gas demand to moderate.

Still, very warm to hot weather with highs in the upper 80s to 100s will continue to dominate the South and West, including Texas and California. As the aforementioned weather system exits the US late in the week, high pressure will recover ground over the eastern US but fresh weak systems will keep overall demand at moderate levels.

High pressure will strengthen over much of the US next week, including the Midwest and Northeast, although the West will be cooler as Pacific weather systems push inland. However, the question arises whether it will be hot enough to drop inventory builds below normal and for how long will the heat last. Temperatures are expected to get warm enough to warrant high cooling demand, but there are flaws in the ridge of high pressure that could quickly turn mid-term weather sentiment to bearish, according to NatGasWeather.com.

Readings

According to AccuWeather.com, New York will see highs in the mid 80s the next three days, compared to the usual 81-82, and will jump to 87-89 degrees on August 29th – September 1st, followed by a cooling to the upper 70s. Chicago will peak at 72 degrees today and tomorrow, 9 below normal, before highs gradually rise into the low-mid 80s over the following ten days.

Down South, readings in Texas City will max out at 94 degrees today, 4 above usual, before dropping to near-seasonal for the rest of the month. To the West, highs in Sacramento will reach 92-95 degrees through August 28th, followed by a drop to the mid-upper 80s.

Inventories

The Energy Information Administration said last Thursday US natural gas inventories rose by 53 billion cubic feet in the week ended August 14th, below analysts’ median estimate of 58 bcf and the five-year average inventory build of 54 bcf. This brought the total gas held in US storage hubs to 3.030 trillion cubic feet, slightly narrowing a deficit to the average 2.950 trillion to 2.7% from 2.8% a week earlier.

This week’s inventory report will likely bring another near-normal build as very warm to hot temperatures over most of the US early last week offset a cooler system that tracked across the northern US. Supplies are projected to have risen by about 60 bcf during the week ended August 21st, below the five-year average increase of 61 bcf and the year-ago one of 77 bcf.

September 3rd’s report, however, is expected to come in above the average due to this week’s cool weather across the Midwest and Northeast. Early estimates point to a build of about 75 bcf for the seven days ended August 28th, compared to the five-year average gain of 60 bcf and a 79-bcf increase a year earlier.

Pivot points

According to Binary Tribune’s daily analysis, October natural gas futures’ central pivot point stands at $2.670. In case the contract penetrates the first resistance level at $2.700 per million British thermal units, it will encounter next resistance at $2.743. If breached, upside movement may attempt to advance to $2.773 per mBtu.

If the energy source drops below its S1 level at $2.627 per mBtu, it will next see support at $2.597. In case the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.554 per mBtu.

In weekly terms, the central pivot point is at $2.738. The three key resistance levels are as follows: R1 – $2.783, R2 – $2.868, R3 – $2.913. The three key support levels are: S1 – $2.653, S2 – $2.608, S3 – $2.523.