Natural gas trading outlook: futures climb as US temps lower storage build forecasts

August 27, 2014 9:11 am

Natural gas futures were higher during early trade in Europe today, as above-average temperatures over many high-demand states in the US drive higher cooling demand, lowering the projected natgas storage build.

Front-month natural gas futures for delivery in October traded at $3.995 per million British thermal units (mBtu), up 1.16%, at 9:06 GMT on the NYMEX. Prices ranged from $3.965 to $3.995 per mBtu. The blue fuel dropped 0.8% on Tuesday, though it did reach a 2.1/2-week high at $4.021.

“We expect $4.00 to continue to remain as strong resistance, not that it can’t be taken out,” analysts at said in a note to clients today. “Prices are tricky short term with two leaner builds coming, which could provide modest support.”

This week’s Energy Information Administration (EIA) report, due on Thursday, will cover the week through August 22 and is expected to show ~80 Billion cubic feet (Bcf) of natural gas were added to US inventories, which would among the smaller builds this summer, though still quite bigger than average. Next week’s build is also expected to be leaner, as several days of warm temps over the northern US drive fairly strong cooling demand.

High temperatures in the summer generally prompt increased cooling demand, which in term bumps up overall natural gas consumption, as 30% of all US natgas is burned in power stations, generating electricity for air conditioners, among all other things.

Last week’s official US natgas storage report revealed 88 billion cubic feet (Bcf) were added to inventories in the week through August 15th. The build was larger than the expected 83 Bcf and was almost double the 5-year average gain for the week, while also marking the sixteenth straight week of higher-than-average injections.

US weather outlook projected easing temps over the southern and central US in the coming days, as the cool Canadian system that tracks through the Midwest and Northeast. The system will be off the mainland by next week, allowing for high pressure to again build up and bump readings up a notch. Overall cooling demand will be moderate-to-high in the first half, easing to moderate later on.

“We see strong summer high pressure starting to show signs of weakening as the fall season inches closer,” said. “There is nothing in the data to suggest intense summer heat will be returning”

New York will have a quite warm day with temperatures several degrees above average at 67-90 degrees Fahrenheit, according to Starting tomorrow readings will be seasonal with highs in the low 80s at most, before another hot Sunday when readings may again reach into the 90s. Chicago is set for another day of moody weather, with mostly clouds and cooler than normal temperatures at 63-73, several below average. The cool will remain through to the weekend, as more clouds and storms are projected continuously into next week.

Down South, Houston is also facing several days of intense storms and heavy clouds, as temps range the seasonal 77-91 degrees Fahrenheit, before clouds retreat on Sunday. Over on the West Coast, Los Angeles will be slightly warmer than normal today and tomorrow, readings between 66-89, a few above average. Later into the week temps will slightly lower, though they will remain above average through to next week, when some cool will settle in.

Overall, next week will set off with relatively high temps, though there will be a significant cooling across the whole US later on. Cooling demand will be moderate-to-low.

Technical support and resistance levels

According to Binary Tribune’s daily analysis, October natural gas futures’ central pivot point stands at $3.969. In case the contract penetrates the first resistance level at $4.001 per million British thermal units, it will encounter next resistance at $4.054. If breached, upside movement will probably attempt to advance to $4.086 per mBtu.

If the energy source drops below its first support level at $3.916 per mBtu, it will next see support at $3.884. If the second key support zone is breached, the power-station fuel’s downward movement may extend to $3.831 per mBtu.

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