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Slowing Consumption Could Negatively Affect Natural Gas Prices

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Natural gas consumption estimates

Natural gas flows to residential and commercial segments saw a weekly fall for the week ending August 25, 2015. However, daily gas deliveries rose as of August 25, 2015. The EIA (U.S. Energy Information Administration) forecast that natural gas flows to residential and commercial segments might fall in 2015—compared to 2014. Likewise, gas flows to industrial plants saw a weekly and daily fall for the week ending August 25, 2015. However, gas flows to industrial power plants fell during this period of the year—compared to last year.

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In its STEO (Short-Term Energy Outlook) report for August, the EIA estimates that natural gas consumption could average around 76.5 Bcf (billion cubic feet) per day in 2015 and 2016—compared to 73.5 Bcf per day in 2014. In contrast, the EIA expects that the natural gas output might rise by 4 Bcf per day to 78.52 Bcf per day in 2015 and by 1.8 Bcf per day to 80.52 Bcf per day in 2016, respectively. The increasing gap between supply and demand could negatively impact natural gas prices.

The key catalyst for demand could be warm weather estimates. The consensus of rising inventory, despite the warm weather, suggests that natural gas prices are feeling the heat. The rising supplies will continue to put pressure on natural gas prices.

The long-term lower natural gas prices affect oil and gas producers like Range Resources (RRC), ExxonMobil (XOM), and Newfield Exploration (NFX). Combined, they account for 3.22% of the Spider Oil and Gas ETF (XOP). These companies’ natural gas production mix is more than 46% of their total production. They also affect ETFs like XOP and the Energy Select Sector SPDR ETF (XLE).

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