Natural Gas Prices Rally: Rising Demand from Power Generators  



Natural gas price rally

Natural gas futures contracts for July delivery rose by 1.40% on Friday. The consensus of rising demand supported natural gas prices. The prices settled at $2.81 per MMBtu (British thermal units in millions) on June 19, 2015. Gas tracking ETFs—like the United States Natural Gas Fund LP ETF (UNG) also increased in Friday’s trade. UNG rose slightly by 0.67% and closed at $13.60 at the close of trade on June 19.

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Weather forecasting agencies reported that warmer weather is expected for the next 15 days in several regions of the US. Warmer weather will boost the cooling demands. As a result, natural gas demand will increase from gas powered electric power plants. The renewed demand from coal power plants switching to natural gas will also support natural gas prices. Power generators will be the biggest natural gas consumers for the long term, according to EIA (U.S. Energy Information Administration) estimates.

Last week, the EIA reported that the weekly natural gas in storage rose by 89 Bcf (billion cubic feet) for the week ending June 12, 2015. The next EIA report is scheduled to release on Thursday, June 25, 2015. The consensus of a rising stockpile will continue to put pressure on natural gas prices.

Gas prices rose for the fourth time over the last ten trading sessions. Prices rose by 2.82% more on the up days than on the average down days, in the last ten days. July natural gas had an average performance among all of the commodities in yesterday’s trade. Gas prices fell 2.60% YTD (year-to-date) following the long-term downtrend led by mild weather.

Energy companies like Antero Resources (AR), Cimarex Energy (XEC), and Exco Resources (XCO) are impacted by the roller coaster ride of natural gas prices. Combined, they account for 3.12% of the Spider Oil and Gas ETF (XOP). They also have a natural gas production mix that’s more than 43% of their total production.


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