Natural gas trading outlook: futures steady as forecasts remain unchanged

Natural gas was mostly flat in early European trading on Wednesday as US weather forecasts saw no significant overnight changes, calling for a cooler pattern this week followed by a warm-up in the medium term, but with possible flaws.

Natural gas for delivery in October traded 0.04% higher at $2.696 per million British thermal units at 08:08 GMT, shifting in a daily range of $2.701 – $2.684. The contract rose 1.5% on Tuesday to $2.695, reversing Mondays losses.

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 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 country 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.

Temperatures

According to AccuWeather.com, the high in New York on August 28-29th will be 82 degrees Fahrenheit, 1 above usual, before jumping into the upper 80s and low 90s the next five days. Chicago will peak in the mid-upper 70s the next four days, compared to the average 80-81, before afternoon highs reach the mid 80s for several days.

Down South, readings in Houston will max out at 93-95 degrees through August 30th, compared to the usual 92, before dropping to the upper 80s and low 90s the following week. On the West Coast, Los Angeles will peak at 90-93 degrees the next three days, followed by a drop to the low-mid 80s.

Stockpiles

Tomorrow’s inventory report by the Energy Information Administration will likely bring a 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, compared to the five-year average increase of 61 bcf and the year-ago one of 77 bcf.

The EIA 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.

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 $2.685. In case the contract penetrates the first resistance level at $2.716 per million British thermal units, it will encounter next resistance at $2.736. If breached, upside movement may attempt to advance to $2.767 per mBtu.

If the energy source drops below its S1 level at $2.665 per mBtu, it will next see support at $2.634. In case the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.614 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.