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Natural Gas: Decoding Key Drivers in 2Q17

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Natural Gas: Decoding Key Drivers in 2Q17 PART 1 OF 8

What to Expect from Natural Gas Prices

Natural gas prices 

US natural gas (BOIL) (UNG) (GASL) futures contracts for May delivery rose 1.2% and settled at $3.23 per MMBtu (million British thermal units) on April 13, 2017. The S&P 500 (SPY) (SPX-INDEX) fell 0.68% on April 13, 2017. Crude oil and natural gas are major parts of the energy sector. The energy sector contributed to ~6.6% of the S&P 500 as of April 13, 2017.

US natural gas prices are near a two-month high due to the following factors:

  • flat natural gas production in recent months
  • rise in natural gas exports to Mexico
  • fall in natural gas inventories in 1Q17
  • short covering
  • cold weather

US natural gas prices have risen ~26% after hitting a three-month low in February 2017. Moves in natural gas prices impact natural gas–weighted upstream companies such as Southwestern Energy (SWN), Rice Energy (RICE), WPX Energy (WPX), and Gulfport Energy (GPOR).

What to Expect from Natural Gas Prices

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US natural gas highs in the last 15 months 

NYMEX natural gas (DGAZ) (UGAZ) active futures hit $3.99 per MMBtu on December 28, 2016. It was the highest level in the last 25 months. Prices rose due to the following:

As of April 13, 2017, prices were 19% below their 15-month high. They fell due to warmer-than-normal weather for this time of year. For more on how the weather impacted natural gas prices, read the next part of this series.

US natural gas lows in the last 15 months 

NYMEX natural gas prices hit a 17-year low of $1.68 per MMBtu on March 4, 2016, due to mild weather, weak demand, strong supplies, and high inventories. We’ll cover more bearish drivers in the rest of this series. As of April 13, 2017, prices have risen 92.3% from their March 4, 2016, lows. They have risen ~22% in the last 12 months.

What’s in this series? 

In this series, we’ll look at US weather, natural gas inventories, and natural gas price forecasts. We’ll also look at US natural gas rig counts, production, and consumption.

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