Natural gas trading outlook: futures slide on mid-term cooling

Natural gas fell in early European trading on Wednesday as a nationwide warm-up this week is expected to be followed by the advance of cooler Canadian weather systems that would curb cooling demand.

Natural gas for delivery in October traded 1.18% lower at $2.670 per million British thermal units at 08:18 GMT, shifting in a daily range of $2.699 – $2.662. The contract rose 0.5% on Tuesday to $2.702 but is down 1.3% for the week so far.

Natural gas demand in the US will be higher this week compared to last, overall moderate compared to normal, but locally high in some regions. High pressure will continue to grip the southern and eastern US through the weekend after cooler conditions east of the Rockies last week curbed cooling demand. However, weak weather systems will prevent the eastern ridge of high pressure from becoming too hot, NatGasWeather.com said, keeping highs over the Midwest, Mid-Atlantic and Northeast in the mid-upper 80s.

Texas, the southern Plains and the Southeast will be a bit hotter as temperatures max out in the low-mid 90s, while the West will be windy as cooler Pacific systems track inland.

Next week will start with high pressure continuing to dominate much of the southern, central and eastern US, while the West will remain cooler, according to NatGasWeather.com. However, a strong cool blast will hit the northern Rockies and central US as the week progresses, potentially reaching northern Texas as well. The West Coast will gradually warm up to above seasonal as the ridge of high pressure shifts, while the East will cool.

Overall, weather sentiment remains skewed to the bearish side as cool Canadian blasts will curb cooling demand next week and more so afterwards, lining up a series of above-average inventory gains. Although the eastern ridge of high pressure could try to regain some ground in-between the Canadian systems, it wont become strong enough to bring intense heat.

Readings

According to AccuWeather.com, highs in New York will peak at 90-91 degrees Fahrenheit today and tomorrow, compared to the average 79-80, followed by a drop to the mid 80s over the next six days and a further slide to the upper 70s afterwards. Chicago will max out in the mid-upper 80s through September 7th, above the usual 79-80, before highs drop to the low-mid 70s.

Down South, temperatures in Texas City will peak at 90-91 degrees on September 5-7th, slightly above the usual 89, followed by a drop to the mid 80s. On the West Coast, Los Angeles will fail to exceed 77-78 degrees the next three days, below the average 84-85, but will jump to seasonal over the next ten days.

Inventories

This Thursday’s EIA report will bring a hefty gain in stockpiles as last week’s cooler weather across the north-eastern US is factored in. Early estimates pin the build at about 90 bcf, well above the five-year average inventory gain for the week ended August 28th of 60 bcf and a 79-bcf increase a year earlier.

The government agency said last Thursday that US natural gas inventories rose by 69 billion cubic feet in the week ended August 21st, exceeding analysts’ median estimate of 59 bcf and the five-year average gain for the week of 61 bcf. This brought the total gas held in US storage hubs to 3.099 trillion cubic feet, expanding a surplus over the five-year average of 3.011 trillion to 2.9% from 2.7% a week earlier.

This week’s warm-up will lead to a narrower inventory gain for the September 10th report, but the mentioned localized cooler weather systems will keep cooling demand checked, resulting in another larger-than-average build. Initial estimates point to a stockpiles increase of about 80 bcf for the week ended September 4th, 17 bcf above the average, while supplies grew by 90 bcf during the comparable period a year earlier.

Pivot points

According to Binary Tribune’s daily analysis, October natural gas futures’ central pivot point stands at $2.698. In case the contract penetrates the first resistance level at $2.725 per million British thermal units, it will encounter next resistance at $2.749. If breached, upside movement may attempt to advance to $2.776 per mBtu.

If the energy source drops below its S1 level at $2.674 per mBtu, it will next see support at $2.647. In case the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.623 per mBtu.

In weekly terms, the central pivot point is at $2.694. The three key resistance levels are as follows: R1 – $2.746, R2 – $2.778, R3 – $2.830. The three key support levels are: S1 – $2.662, S2 – $2.610, S3 – $2.578.