Natural gas price movement
Prices began the week on a negative note by falling 2.32 % compared to last Friday’s close, despite cooler-than-normal temperature forecasts. Prices settled at $2.65 per MMBtu (million British thermal units) on Monday, April 6.
On Tuesday, natural gas prices rallied as forecasts turned cooler. MDA Weather Services forecast that temperatures would likely remain below normal across the majority of states east of the Rocky Mountains from April 12 to April 21. Prices advanced 1.1% to $2.68.
The rally was short-lived because prices declined the next day by~2.3% to finish at $2.619.
Reacting to a larger-than-expected build, prices fell again on Thursday following the release of a bearish EIA (U.S. Energy Information Administration) inventory report. Prices decreased by ~3.5% to settle at $2.528. For more on the EIA report, refer to Part 2 of this series.
Weather a major catalyst
The weather is the major driver of natural gas prices. Investors can get an idea of how prices will likely move in the short term based on weather forecasts. When weather forecasts turn cooler, especially in the winter when heating demands are at their highest, available natural gas in storage can come under pressure. This is bullish for natural gas prices. On the other hand, milder temperature forecasts are bearish for prices.
While natural gas demand is high during the winter, hot temperatures during the summer can also cause demand to increase. Power stations use more fuel to power cooling devices like air conditioners. This can reduce storage buildup during injection season, which is also bullish for natural gas prices.
Pricing changes drive short-term movements in the stock prices of natural gas producers such as Cabot Oil & Gas (COG), Range Resources (RRC), Devon Energy (DVN), and Chesapeake Energy (CHK). Also, since all of these companies make up 5% of the Energy Select Sector SPDR ETF (XLE), these trends affect the ETF as well.