Natural gas trading outlook: futures extend gains on warmer East

Natural gas rose for a fourth day on Tuesday as a mid-week warm-up across the eastern US leads to higher cooling demand, although temperatures are not expected to become high enough to significantly impact inventory builds.

Natural gas for delivery in October traded 0.44% higher at $2.770 per million British thermal units at 08:25 GMT, shifting in a daily range of $2.785 – $2.760. The contract surged 2.4% on Monday to $2.758 after it closed the previous week 1.4% higher.

According to NatGasWeather.com, natural gas demand in the US will be low-moderate compared to normal through September 21st, with a warm weather trend in effect for the southern, central and eastern US over the following seven days, while the Northwest will be near or cooler than normal.

Temperatures over the eastern US will warm up through the end of the week to a few degrees above normal after being a few degrees cooler. Afternoon highs will rise into the 70s to mid-80s over the northern US, while readings over the South peak in the mid-80s to 90s, with Texas and the Plains being the hottest. A stalled frontal boundary will keep highs over the Southeast from warming out of the 80s, curbing cooling demand to lighter than normal. Also helping limit demand, the West, including California, will become cooler as Pacific weather systems track inland with showers.

After temperatures warm up nicely over the East by Friday, a fresh cool blast will hit the Midwest and interior Northeast this weekend, NatGasWeather.com said, dropping highs briefly into the 60s and 70s, before warming back to slightly above normal next week. As the week progresses, the central, southern and eastern US will remain dominated by high pressure, while the Northwest and northern Plains will be slightly cooler than normal due to Canadian systems passing through with showers.

Overall, weather sentiment remains skewed to the bearish side as readings across the north-eastern US hover near the average, slightly above or below at times, while the south-central US drives stronger cooling demand but the West offsets it with lighter such. This will lead to a series of near-average or larger late-summer inventory builds.

Inventories

Last Thursday’s supply report by the EIA showed a smaller than expected build of 68 bcf for the week ended September 4th, 7 bcf below expectations, which brought the total gas held in US storage hubs to 3.261 trillion cubic feet. Still, the above-normal inventory gain helped expand a surplus over the five-year average stockpiles of 3.134 trillion to 4.1% from 4.0% a week earlier.

This Thursday’s report will likely print another near-average build, with early estimates pinning the number at about 74 bcf, compared to the five-year average gain of 75 bcf during the seven days ended September 11th, while stockpiles rose by 90 bcf a year earlier.

Next week’s inventory increase, however, is expected to exceed the average as the cool start to the tracked period over the eastern US is taken into account. The September 24th report is projected to print a stockpiles gain of little over 100 bcf for the week ended September 18th, compared to the average gain of 83 bcf and the year-ago one of 96 bcf.

Temperatures

According to AccuWeather.com, temperatures in New York will peak at 84-87 degrees Fahrenheit through September 20th, compared to the average 74-75, before dropping into the mid-high 70s afterwards. Chicago will max out at 81-83 degrees on September 16-18th, above the usual 75, before sliding into the low-mid 70s for the rest of the month.

Down South, readings in Houston will peak in the upper 80s and lower 90s through September 24th, followed by a drop to the low-mid 80s through the end of September. On the West Coast, temperatures in Los Angeles will max out at 81 degrees on September 17th, 2 below usual, with highs expected to remain in the mid 80s over the next 10 days, followed by a drop into the mid 70s.

Pivot points

According to Binary Tribune’s daily analysis, October natural gas futures’ central pivot point stands at $2.742. In case the contract penetrates the first resistance level at $2.791 per million British thermal units, it will encounter next resistance at $2.825. If breached, upside movement may attempt to advance to $2.874 per mBtu.

If the energy source drops below its S1 level at $2.708 per mBtu, it will next see support at $2.659. In case the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.625 per mBtu.

In weekly terms, the central pivot point is at $2.689. The three key resistance levels are as follows: R1 – $2.737, R2 – $2.781, R3 – $2.829. The three key support levels are: S1 – $2.645, S2 – $2.597, S3 – $2.553.