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Natural Gas Consumption: A Key Catalyst for Natural Gas Prices

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EIA monthly drilling report

The EIA (U.S. Energy Information Administration) released its monthly drilling report on July 13, 2015. The data showed that natural gas production from the key seven shale regions is expected to decrease in August 2015 compared to July 2015. These seven shale regions account for 95% of natural gas produced in the United States. The decreasing production should continue to support natural gas prices. Natural gas production is estimated at 45.5 Bcf in July 2015 and 45.14 Bcf (billion cubic feet) in August 2015.

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Gas consumption

Warmer weather and surging demand from electric power plants should continue to narrow the gap between supply and demand. Weekly gas deliveries to electric power plants increased by 14% to 35 Bcf compared to the previous week. Gas flows to industrial power plants also increased for the week ended July 15 compared to the previous week. Surprisingly, gas deliveries to residential and commercial segments also increased during this period.

The volatility in natural gas prices will affect oil and gas producers like WPX Energy (WPX), Exco Resources (XCO), and Energy EXXI (EXXI). Combined, they account for 4.20% of the Spider Oil and Gas ETF (XOP). These stocks also have a natural gas production mix that’s greater than 45% of their total production.

Oil and gas ETFs like the Energy Select Sector SPDR ETF (XLE) and XOP diverged from the natural gas prices in yesterday’s trade. They declined by 1.76% and 3.85%, respectively, at the end of trade yesterday.

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