The residential and industrial demand for natural gas saw a weekly decline, according to industry estimates. The milder weather estimates are driving demand lower in the short term as the heating season comes to an end. However, demand from power plants surged because of lower natural gas prices. Consumption from power plants will increase in 2015.
On April 9, 2015, the EIA (U.S. Energy Information Administration) reported that US natural gas in storage increased to 1,476 Bcf (billion cubic feet) from 1,461 Bcf for the week ending April 3. The inventories increased by 1% week-over-week. They’re above 78%—compared to last year. However, the inventories are 9% below their five-year average of 1,649 Bcf. The next report is expected to be released on April 16, 2015.
EIA sources state that natural gas production will continue to increase and outweigh demand in 2015. Massive production, the strong dollar, weak demand, warm weather, and high inventories put pressure on natural gas prices.
In yesterday’s trade, the better-than-expected stock pile led to carnage in the natural gas market. Prices broke the important psychological level of $2.60 per MMBtu (British thermal units in millions) and settled at $2.52 per MMBtu in yesterday’s trade. The next important level to watch is $2.50 per MMBtu. Natural gas prices hit this mark in June 2012.
Short-term and improved natural gas demand consensus could push natural gas prices to the nearest resistance of $2.70 per MMBtu. Gas prices are trading below their 20, 50, and 100-day moving averages. The RSI (relative strength index) is in oversold territory. The RSI signals gas prices’ possible rebound.
ETFs like the Spider Oil and Gas (XOP) and the Energy Select Sector SPDR ETF (XLE) rose in yesterday’s trade—despite the decline in natural gas prices. These ETFs rallied by 1.83% and 1.60%, respectively, on April 9, 2015.
Some of the key stocks that are sensitive to natural gas prices include Rice Energy (RICE), Cabot Oil (COG), EQT (EQT), and Ultra Petroleum (UPL). They have a natural gas production mix greater than 90% of their production portfolio. They account for 4.16% of XOP.