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Why cooler weather last week didn’t push natural gas prices up

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Natural gas price movement

The week started off with prices increasing by ~1.5% to $3.91 MMBtu, or million British thermal units, on Monday. This was a result of a cooler weather forecast for the Eastern U.S. The MDA Weather Services reported that the temperature might fall below normal in the Eastern U.S. between October 18 and October 27.

NG prices

However, on Tuesday, October 14, natural gas prices remained undecided, swinging between gains and losses as forecasts called for cooler-than-normal weather. Yet the fact that temperatures wouldn’t be cold enough to cause widespread freezing kept price gains in check.

Prices closed at $3.81 on Tuesday, 2.5% lower than the previous day’s close. Prices further fell on Wednesday to $3.80, continuing their declining trend well into the week, making it the second weekly decline.

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The declining trend was mostly the result of forecasts calling for no widespread freezes in the U.S. until the end of October. The Environmental Information Administration’s natural gas inventory report indicated higher-than-expected gains in inventories. This played a part in pulling prices down further. Read more about natural gas inventory movements in Part 2 of this series.

Natural gas closed at $3.76 MMBtu on Friday, the lowest level in almost three months.

Background

Gas inventories increased to 3.299 trillion cubic feet (or Tcf) on October 10—from lows of 1.887 Tcf in March. Inventory gains have been consistently topping the five-year weekly averages for 26 weeks straight. This remarkable build-up in U.S. natural gas stocks is being driven by the booming supply from the shale gas revolution.

We’ll discuss the booming U.S. natural gas production in the next part of the series.

Key stocks and ETF

Natural gas prices affect the margins of producers like Chesapeake Energy Corporation (CHK), Devon Energy Corp (DVN), EOG Resources Inc (EOG), and Cabot Oil & Gas Corporation (COG). All these companies are components of the Energy Select Sector SPDR ETF (XLE).

Learn more about Why investors closely monitor natural gas inventories.

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