Weather is a major catalyst
The weather is the major driver of natural gas prices. So, investors can get an idea of how prices will likely move in the short term. In turn, these prices drive short-term movements in natural gas producers’ stock prices—like Devon Energy (DVN), QEP Resources (QEP), EOG Resources (EOG), and Ultra Petroleum (UPL).
Also, since many of these companies are part of the Energy Select Sector SPDR ETF (XLE), making up ~3% of the ETF, these trends also affect the ETF as well. Let’s see how the weather impacted prices last week.
Natural gas price movement
Prices declined by 1.6% over previous market close on Tuesday. Expectations of another bearish inventory report dampened the bullish weather expectations, amid strong production.
Prices settled at $2.759 MMBtu (British thermal units in millions) on Tuesday, February 17.
However, prices advanced on Wednesday as near-term weather forecasts won the day. Forecasts called for frigid temperatures across most of the Northeast in the next few days.
Prices increased ~2.61% to settle at $2.831 MMBtu on Wednesday.
On Thursday, colder weather continued to boost natural gas prices. According to WSI Corp., colder-than-normal weather could be expected in the Northeast and Midwest from February 24 through March 5.
Prices were moderated following the EIA’s inventory report. This showed that natural gas inventories exceeded the five-year average. They increased by 0.3 cents to $2.834. Read Part 2 in this series to learn more about the latest inventory movement.
The rally continued into Friday. Colder weather forecasts remained resilient. Updated weather forecasts called for frigid temperatures across a larger portion of the US.
Prices climbed 4% to settle at $2.951.
Apart from weather, there’s another major factor that continues to affect natural gas prices. We’ll discuss this more in the next part of this series.