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Natural Gas Prices Rose Last Week on Warm Weather Forecasts

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Natural gas prices

Natural gas prices mostly rose in the week ended July 3. They increased 1.76% on a weekly basis. Prices closed at $2.822 per MMBtu (million British thermal units) on Thursday, July 2, compared to last Friday’s (June 26’s) close of $2.773 per MMBtu.

Higher natural gas prices are profitable for natural gas producers like Chesapeake Energy (CHK), Southwestern Energy (SWN), Range Resources (RRC), and QEP Resources (QEP). These companies are components of the iShares U.S. Energy ETF (IYE). They make up ~3% of the ETF. At higher prices, producers are incentivized to produce more, which in turn benefits the midstream energy MLP (master limited partnership) sector. This sector includes companies such as Magellan Midstream Partners (MMP). Higher production means higher volumes of transportation, which means higher revenues.

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Price movements

Natural gas prices on Monday, June 29, increased by 1% compared to the prior Friday’s (June 26) price of $2.773 per MMBtu. They settled at $2.805 per MMBtu. Prices rose as a result of warmer weather forecasts in Florida to Maine, from July 4 through July 13, according to MDA Weather Services. Warmer weather boosts cooling demand, which is a good sign for prices.

Warmer weather forecasts continued to push prices higher the next day as well. Prices increased ~1% to settle at $2.832 on Tuesday, capping the quarter with a ~7% increase over the previous quarter.

On Wednesday, however, prices retreated 1.73% on cooler weather forecasts, causing them to settle at $2.783 per MMBtu on Wednesday.

On Thursday, prices rose despite storage data coming in line with market expectations. This was likely because of the low weekly injection (69 bcf) compared to the weekly injection in 2014 and the five-year net injection (read Part 1 of this series). This created speculation that production was likely easing. Prices increased 1.4%, and closed at $2.822 per MMBtu on Thursday.

Natural gas prices seemed to have fallen slightly the next day, as prices traded around $2.819 on Friday.

Continue to the following part of this series for an analysis of how various natural gas–exposed securities performed this week.

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