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Production Concerns Weigh Down Natural Gas Prices This Week

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Natural gas prices

Natural gas prices continued to fall this week. Prices closed at $2.611 per MMBtu (million British thermal units) on Thursday, June 4. This was ~1.2% lower than last Friday’s close of $2.642 per MMBtu.

Natural gas prices affect the profitability of natural gas producers like Chesapeake Energy (CHK), Devon Energy (DVN), Range Resources (RRC), and QEP Resources (QEP). These companies are components of the iShares U.S. Energy ETF (IYE) and make up ~3% of the fund.

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Price movements this week

Natural gas prices on Monday, June 1, increased ~0.3% compared to last Friday’s price of $2.642 per MMBtu. They settled at $2.649 per MMBtu.

The increase was likely a result of lower natural gas production numbers reported by the EIA (U.S. Energy Information Administration) in its Natural Gas Monthly Report released on May 29. Marketed natural gas production fell from 78.3 bcf/d (billion cubic feet per day) in February to ~78.1 bcf/d in March. Dry natural gas production fell from 73.8 bcf/d in February to 73.4 bcf/d in March.

Marketed natural gas is the gas produced before associated liquids like propane and butane are extracted. The removal of these liquids leaves dry natural gas.

Prices continued to rise on Tuesday after the MDA Weather Service forecast warmer temperatures in parts of the Midwest from June 7 through June 11. Prices rose 1.8% to settle at $2.698.

On Wednesday, prices plunged after the EIA revised its recently released first quarter natural gas production data in its Natural Gas Monthly Report. Dry and marketed natural gas production in 1Q15 were underreported by ~1.5 bcf/d. The higher production number reinstated production concerns in the market. Prices fell ~2.4% to touch $2.634.

On Thursday, prices fell further after the EIA reported a more-than-expected storage build. Refer to the first part of this series for more information. Prices fell ~1% and closed at $2.611/MMBtu.

In the next part of this series, we’ll analyze how various natural gas exposed securities performed this week.

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