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Are Hedge Funds Turning Bullish or Bearish on Natural Gas?

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Are Hedge Funds Turning Bullish or Bearish on Natural Gas? PART 1 OF 6

US Natural Gas Futures Could Hit a 6-Month High

Natural gas futures 

US natural gas (BOIL) (GASL) futures contracts for December delivery rose 0.8% to $3.2 per MMBtu (million British thermal units) on November 9, 2017. It’s the highest settlement since May 26, 2017. Natural gas prices rose 7.3% in the last five trading sessions. Prices rose due to the expectations of cold weather and short-covering. The less-than-expected rise in natural gas inventories compared to the historical averages also supported natural (DGAZ) (BOIL) gas prices. The EIA (U.S. Energy Information Administration) published the report yesterday.

US Natural Gas Futures Could Hit a 6-Month High

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Highs and lows 

US natural gas active futures tested $1.68 per MMBtu on March 4, 2016. It was the lowest level in almost two decades. In contrast, prices tested $3.99 per MMBtu on December 28, 2016—the highest level in almost 35 months. Higher natural gas prices benefit energy producers (XLE) (IXC) like ExxonMobil (XOM), WPX Energy (WPX), Southwestern Energy (SWN), and Gulfport Energy (GPOR).

Key natural gas price drivers for the next week 

The US is expected to have cooler-than-average temperatures next week. The weather could drive US natural gas (GASL) (UNG) prices to six-month highs. A less-than-expected addition in natural gas inventories compared to the seasonal and historical average could also support natural gas prices. However, high US natural gas production could limit the upside for natural gas prices.

Wall Street 

The Dow Jones Industrial Average Index (DIA) fell 0.4% to 23,461.94 on November 9, 2017. The NASDAQ (QQQ) also fell 0.6% to 6,750.05 on the same day. The S&P 500 (SPY) fell 0.38% to 2,584.62 on November 9, 2017. The industrials (XLI) (ITA), materials (XLB), and IT (XLK) (VGT) sectors dragged the SPY on November 9, 2017. The expectations of a delayed corporate tax cuts proposal weighed on the US stock market.

All of these three indices hit a record on November 8, 2017. The S&P 500 rose 21% in the last 12 months. It’s trading at 18x the expected earnings compared to its ten-year average of 14.3x, according to Reuters.

What’s in this series? 

In this series, we’ll discuss natural gas inventories, rig counts, natural gas supply and demand, and some natural gas price forecasts.

In the next part, we’ll analyze how the weather could influence US natural gas prices.

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