Weather, a major catalyst
Weather is the major driver of natural gas prices. Weather gives investors an idea of how prices will likely move in the short term. These prices in turn drive short-term movements in stock prices of natural gas producers such as Chesapeake Energy (CHK), QEP Resources (QEP), Range Resources (RRC), and Ultra Petroleum Corp. (UPL).
Many of these companies are components of the Vanguard Energy ETF (VDE) and make up ~1.3% of the fund, so these trends affect the ETF as well. Let’s see how weather impacted prices for the week ended March 6.
Natural gas price movement
Prices started the week ended March 6 by declining ~5.7% amid reports of higher than normal temperatures in the Midwest through March 18. This was according to Commodity Weather Group, LLC.
Prices settled at $2.678 MMBtu (million British thermal units) on Monday, March 9. This was the lowest in the past month.
Prices advanced on Tuesday, however, increasing 2% to $2.732.
Continuing the rally into Wednesday, prices increased on the back of colder weather forecasts and projections that the EIA will report another hefty withdrawal in its natural gas inventory report to be released the next day.
Prices increased ~3.4% to $2.824 on Wednesday.
While the inventory draw was hefty, as we saw in Part 2 of this series, it didn’t stop markets from speculating about the high production levels that have curbed whatever upward pressure the cold weather could have put on natural gas prices.
Prices declined ~3.2% on Thursday to settle at $2.734.
There’s one more factor besides weather that has affected and continues to affect natural gas prices. Continue to the next part of this series to find out.