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Why natural gas prices cheer as winter starts

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Nov. 27 2019, Updated 1:30 p.m. ET

Natural gas price movement

Natural gas prices started the week by increasing the most in four weeks. This was a result of cold weather forecasts.

According to MDA Weather Services, below normal temperatures would be seen in the eastern U.S. from November 8 through November 17.

The preceding week saw prices falling to the lowest levels in a year. However, cold weather forecasts this week turned things around. It caused prices to touch $4.

Prices jumped 4% to close at $4.04 million British thermal units (or MMBtu) on Monday.

NG prices

Prices increased to $4.12 on Tuesday. Forecasts from Commodity Weather Group called for below normal temperatures from the Great Plains to the East Coast.

Prices continued to increase on Wednesday on bullish weather forecasts. Prices closed at $4.19 on Wednesday.

On Thursday, prices increased for the eighth consecutive trading day after weather forecasts called for a blast of arctic air. It will likely push temperatures ten degrees below normal. Prices jumped 5% on this news to close at $4.40.

Natural gas prices had a very bullish week. Price increased ~24% in the past eight trading days. It’s the longest increasing streak this year.

Is it only about the temperature?

Given strong production trends, it’s important to determine the role that the weather plays in determining natural gas prices.

However, despite last week’s higher-than-expected inventory increase, an increase in prices indicates that the weather could be a strong contender.

Key stocks and exchange-traded funds (or ETFs)

Natural gas prices affect producers’ margins like Devon Energy (DVN), EQT Corp. (EQT), EOG Resources (EOG), and Cabot Oil and Gas (COG).

All of these companies are part of the Energy Select Sector SPDR ETF (XLE).

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