Natural gas trading outlook: futures extend weekly loss ahead of EIA report

January 22, 2015 12:17 pm

Natural gas fell on Thursday, paring overnight gains, as weather forecasts continued to call for warmer-than-usual weather across most of the US this week and the next. However, losses were capped as investors eyed today’s EIA storage data, broadly expected to show a larger-than-average inventory decline last week.

Natural gas for delivery in February traded 1.28% lower at $2.936 per million British thermal units at 11:54 GMT, having shifted between $3.048 and $2.916 during the day. The contract settled 5.05% higher at $2.974 yesterday but prices were still down 5.7% for the week so far.

Investors awaited the release of EIA’s inventory data later today, while also keeping a close eye on weather developments. The EIA will likely report a withdrawal in the range of 220-230 billion cubic feet for the week ended January 16th, compared to the five-year average of -176 bcf and the 133-bcf drop during the comparable week a year earlier. However, next week’s report should reflect a much thinner inventory withdrawal as the recent overall mild conditions across the US get factored in.

The EIA reported last Thursday that US natural gas inventories declined by 236 billion cubic feet in the week ended January 9th to 2.853 trillion cubic feet, expanding a deficit to the five-year average inventories of 2.966 trillion to 3.8% from 2.1% during the previous week, or 113 bcf. The surplus to the year-ago stockpiles level of 2.571 trillion cubic feet expanded to 11.0%.

Weather forecasts

According to NatGasWeather.com, natural gas demand in the US through January 28th will be moderate compared to normal, with a warm weather trend for the West for the following seven days, while the East will be engulfed by colder conditions.

The majority of the country continues to enjoy mild temperatures, apart from from the Southeast and Texas which will be affected by a weather system with snow accumulations behind it. A more notable system will track across the Midwest and Northeast early next week and push deep into the Southeast, carrying lower-than-usual readings.

Additional weather systems will follow throughout the week, NatGasWeather.com reported, lowering temperatures for the Great Lakes and Northeast to below normal and carrying rain and snow. Although the weather data are still unclear for the beginning of February, frigid Arctic air will likely struggle to push out southward from these regions, allowing for the remaining portions of the US to warm up above the usual due to the combination of high pressure and the arrival of mild Pacific weather systems.

Temperatures

According to AccuWeather.com, readings in New York will range between 33 and 38 degrees on January 24th, compared to the average 27-38, before dropping to 16-26 degrees three days later. Chicago will enjoy mostly seasonal weather through January 29th, with readings on January 24th set to range between 30 and 35 degrees Fahrenheit, compared to the average 18-31.

Down South, temperatures in Houston will max out at 58 degrees on January 24th, 5 below normal, before jumping to 68 degrees two days later. On the West Coast, Los Angeles will see the mercury top 83 degrees on January 25th, 15 above average, and will remain warmer than usual through the end of the month, with highs set to range between 71 and 77 degrees.

Pivot points

According to Binary Tribune’s daily analysis, February natural gas futures’ central pivot point stands at $2.952. In case the contract penetrates the first resistance level at $3.037 per million British thermal units, it will encounter next resistance $3.100. If breached, upside movement may attempt to advance to $3.185 per mBtu.

If the energy source drops below its first support level at $2.889 per mBtu, it will next see support at $2.804. If the second key support zone is breached, the power-station fuel’s downward movement may extend to $2.741 per mBtu.

In weekly terms, the central pivot point is at $3.087. The three key resistance levels are as follows: R1 – $3.392, R2 – $3.656, R3 – $3.961. The three key support levels are: S1 – $2.823, S2 – $2.518, S3 – $2.254.

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