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Natural Gas Prices Extend the Gain: Led by Improving Demand

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Natural gas price action

Below is our natural gas price fundamental analysis. For an in-depth look at natural gas and related companies, sectors, and drivers, please refer to our Energy and Power page.

NYMEX-traded June natural gas futures grew by 1.31% on Tuesday. The price increase was led by the consensus of a higher demand outlook from power plants. Gas futures settled at $2.935 per MMBtu (British thermal units in millions) on May 12, 2015. Gas tracking ETFs like the United States Natural Gas Fund LP ETF (UNG) also reflected the price movement of natural gas prices. UNG increased by 1.12% and settled at $14.48 on May 13.

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Lower natural gas prices are driving the demand for natural gas as an alternative to coal. The renewed demand from power plants will drive the demand for natural gas this summer. During the last week of May 2015, the weather will be warmer on the East Coast of the US, according to weather estimates from MDA Weather Services. The warm weather will increase the cooling demand. As a result, it will increase the natural gas demand.

The EIA (U.S. Energy Information Administration) will release the natural gas in storage report today at 10:30 AM. Last week, the weekly stockpile rose by 76 Bcf (billion cubic feet) for the week ending May 1. A Bloomberg survey shows that the inventory will increase by 117 Bcf for the week ending May 8.

Gas prices increased for the fifth time in over the last ten trading sessions. During the period, prices increased by 2.46% more on the up days than on the average down days. Gas futures for June delivery fared well against other commodities on Wednesday’s trade. Prices rallied by 1.9% YTD (year-to-date)—led by the improving demand outlook.

Natural gas fluctuations impact oil and gas producers like Southwestern Energy (SWN), Devon Energy (DVN), and Anadarko Petroleum (APC). They account for 3.57% of the Spider Oil and Gas ETF (XOP). These companies have a natural gas production mix that’s greater than 46% of their total production portfolio.

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