Weather: 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 based on weather forecasts. These prices in turn drive short-term movements in stock prices of natural gas producers like Chesapeake Energy (CHK), QEP Resources (QEP), Devon Energy (DVN), and Southwest Energy (SWN). Also, since all of these companies are components of the Energy Select Sector SPDR ETF (XLE), making up 3.3% of the ETF, these trends affect the ETF as well. Let’s see how weather affected prices last week.
Natural gas price movement
Prices started the week by declining 2% amid reports of milder spring temperatures, according to Commodity Weather Group, which called for average or normal temperatures in the contiguous US from April 2 through April 6.
Prices declined ~2% to settle at $2.733 per MMBtu (million British thermal units) on Monday, March 23.
Prices advanced on Tuesday on colder weather forecasts in the Northeast region. They increased ~2% to settle at $2.786.
On Wednesday, though, prices declined again as markets looked ahead to the release of the weekly inventory report released by the EIA. Prices decreased ~2.3% to $2.723 on Wednesday.
Following a bearish inventory report released by the EIA (refer to Part 2 of this series), prices retreated by ~2% on Thursday to settle at $2.672.
EIA data showed that inventories increased more than expected. The fact that injection occurred before the formal end of the heating season is also bearish for natural gas prices.
The effect of the higher-than-expected increase in inventories continued the next day as prices declined another 3% to settle at $2.59 on Friday.
Apart from weather, there’s one more factor that continues to affect natural gas prices. Read on to the next part of this series to learn more.