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Natural Gas Prices Rise due to Short Covering

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Natural gas prices rise

August natural gas futures contracts trading on NYMEX rose for the first time in the last four days. Prices rose by 1.48% and closed at $2.72 per MMBtu (British thermal units in millions) on July 10, 2015. Natural gas prices rose due to short covering. The US benchmark following ETFs like the United States Natural Gas Fund LP ETF (UNG) also rose in line with natural gas prices. UNG rose by 1.55% and closed at $13.10 on July 8, 2015.

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Yesterday, the EIA (U.S. Energy Information Administration) released its weekly natural gas inventory report. Government data showed that natural gas in storage rose by 91 Bcf (billion cubic feet) for the week ending July 3, 2015. Last week, gas stocks rose by 69 Bcf for the week ending June 26, 2015. This resulted in a wider gap between the supplies and demand. As a result, some traders started short covering and pushed natural gas prices higher. Markets don’t tend to move in the same direction.

Warmer weather is anticipated in the Midwest and southern regions of the US between July 13 and July 22, 2015, according to sources from MDA Weather Services. In contrast, some forecasting models suggest mild weather over the next 15 days in the US. This will curb the cooling needs. In turn, it will curb the demand for natural gas.

This is the fourth up day for natural gas prices in the last ten days. Prices fell by 0.87% more on the down days than on the average up days, over the last ten days. Natural gas futures for August delivery fared well against other commodities in Thursday’s trade. Prices fell more than 4% YTD (year-to-date)—led by rising inventories and oversupply concerns.

Energy producers like Contango (MCF), Concho Resources (CXO), and EP Energy (EPE) are impacted by the volatility in natural gas prices. They account for 2.86% of the Spider Oil and Gas ETF (XOP). These companies also have a natural gas production mix that’s more than 35% of their total production.

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