Natural gas trading outlook: futures steady on bearish weather, inventories

Natural gas was little changed in early European trading on Friday, holding near a recently hit minimum, as exceptionally comfortable weather across much of the US curbed both cooling and heating demand. A bearish inventory report by the EIA also added to the pressure.

Natural gas for delivery in November traded 0.30% higher at $2.682 per million British thermal units at 08:18 GMT, shifting in a daily range of $2.687 – $2.663. The contract rose 1.4% on Thursday to $2.674, its first daily increase for the week, helping pare a weekly drop.

Thursdays gain came in spite of a larger-than-expected inventory build, likely driven by short covering following seasonal buying from big players taking advantage of low prices. The Energy Information Administration said that US natural gas stockpiles rose by 106 billion cubic feet in the week ended September 18th, 10 bcf above analysts median projection, but matching a forecast laid out by NatGasWeather.com. The five-year average gain for the period is 83 bcf, while supplies rose by 96 bcf a year earlier.

Total gas held in US storage hubs amounted to 3.440 trillion cubic feet, expanding a surplus over the five-year average of 3.292 trillion to 4.5% from 3.9% a week earlier. Supplies were also 15.7% above the year-ago stockpiles of 2.974 trillion cubic feet.

In accordance with this weeks exceptionally comfortable weather across almost the entire US, next Thursdays report is expected to bring another hefty build, although a bit lighter and near the average. Initial estimates for the October 1st report call for a gain of about 100 billion cubic feet during the seven days ended September 25th, compared to the five-year average gain of 94 bcf and below the year-ago increase of 110 bcf.

Natural gas demand in the US will remain low compared to normal through October 1st, according to NatGasWeather.com, with a warmer trend in effect for the southern, central and eastern US over the following seven days, while the Northwest will be near normal.

A very comfortable weather pattern with highs several degrees above normal remains in effect over most of the US and will extend into next week. Temperatures over the North will remain in the comfortable 70s and low 80s, limiting the need for cooling and heating, whereas the latter should have begun to pick up. Texas, the South and the Southwest will be the country’s hottest regions with highs in the 80s and 90s, but with relatively strong cooling demand confined mainly to those regions, national consumption will remain subdued. Over the West, California will be quite warm, while cooler weather systems track into the Northwest and northern Rockies.

Early October, the Northwest will continue to be slightly cooler than normal as Canadian weather systems track through, while the central, southern and eastern US will remain several degrees above normal without becoming hot. It should be noted that the pool of cold air over Canada continues to strengthen but before it advances southward, the northern US will enjoy quite comfortable conditions. However, with early signs of a more pronounced cool Canadian blast around October 6th, natural gas consumption will likely begin to pick up around October 10th as heating demand in the northern US increases.

Temperatures

According to AccuWeather.com, highs in New York will range between 72 and 76 degrees through October 2nd, above the usual 69-70 for the period, followed by a drop to the upper 60s. Chicago will peak at 79 degrees on September 28-29th, before maximum readings drop into the upper 60s and low 70s afterwards.

Down South, temperatures in Texas City will max out at 86-88 degrees through October 2nd, slightly above the usual 84-86, before easing to the low 80s. On the West Coast, readings in Los Angeles will reach 91-93 degrees the next two days, compared to the average 81-82, followed by a gradual drop to the low 80s.

Pivot points

According to Binary Tribune’s daily analysis, November natural gas futures’ central pivot point stands at $2.648. In case the contract penetrates the first resistance level at $2.704 per million British thermal units, it will encounter next resistance at $2.734. If breached, upside movement may attempt to advance to $2.790 per mBtu.

If the energy source drops below its S1 level at $2.618 per mBtu, it will next see support at $2.562. In case the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.532 per mBtu.