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. These prices drive short-term movements in the stock prices of natural gas producers like Chesapeake Energy (CHK), QEP Resources (QEP), Ultra Petroleum (UPL), and Range Resources (RRC).
Also, since many of these companies are components of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP), these trends also affect the ETF. The above-mentioned companies make up ~4.4% of the ETF. Let’s see how weather affected prices last week.
Natural gas price movement
The week started on a positive note, as forecasts turned colder for much of the Northeast and Midwest regions in the US for the following week.
Prices increased slightly, by 0.7%, to settle at $2.597 MMBtu (million British thermal units) on Monday, February 9.
Prices continued to increase on Tuesday on more cold weather forecasts. The National Oceanic and Atmospheric Administration (or NOAA) forecasted cooler temperatures to hit the US Southeast, with a possibility of snow and freezing rain in the Northeast.
Prices inched ~3% to settle at $2.677 MMBtu.
The rally continued on into Wednesday, as colder weather forecasts remained resilient. Updated weather forecasts called for frigid temperatures across the Great Lakes and Northeast. Prices increased ~4.5% to settle at $2.797.
On Thursday, prices declined, as EIA inventory data showed natural gas inventories declined less than expected. Prices fell 3% to $2.713 on Thursday.
On Friday, however, prices were prompt to recover, as cold weather forecasts dominated the week. MDA Weather Services forecasted below-normal temperatures in the eastern US. Prices climbed ~3.4% to settle at $2.804.
Apart from weather, there’s one more factor that continues to affect natural gas prices. Continue to the next part of this series to read more.