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Weather Supported Natural Gas Prices, but Inventories Didn’t

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Aug. 17 2015, Published 2:03 p.m. ET

Natural gas prices

Natural gas prices fell by ~0.4% between Friday, August 7, and Thursday, August 13. Prices closed at $2.787 per MMBtu (British thermal units in millions) on August 13. On August 7, prices closed at $2.798 per MMBtu.

Lower natural gas prices are negative for natural gas producers such as Chesapeake Energy (CHK), Southwestern Energy (SWN), QEP Resources (QEP), and Cabot Oil & Gas (COG). These companies make less money when natural gas prices fall. All of these companies combined make up ~1.6% of the iShares U.S. Energy ETF (IYE).

With lower prices, natural gas producers may be inclined to produce less. This would, in turn, be negative for the energy MLP sector, which includes companies such as MarkWest Energy Partners (MWE). Lower production would mean lower volumes to transport, which could reduce MLP revenues.

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Price movements

Natural gas prices on Monday, August 10, rose 1.57% from the previous Friday’s closing price of $2.798 per MMBtu. They settled at $2.842 per MMBtu. Prices rose on warmer weather predictions. Warmer weather boosts power demand for cooling purposes.

Prices remained flat on Tuesday. They settled at $2.844 per MMBtu.

On Wednesday, prices jumped again, as weather forecasters reaffirmed warmer weather forecasts. Prices increased 3% and settled at $2.931 per MMBtu—the highest in almost three months.

On Thursday, prices spiraled down, canceling the gains they had seen. They fell 4.91% to close at $2.787 per MMBtu. The decline was due to the EIA (U.S. Energy Information Administration) report, which showed a larger-than-expected storage increase. The report also showed that natural gas storage levels remain higher than the five-year average. Inventories have been outpacing the five-year average since the week ended May 29.

Natural gas prices seemed to have recovered slightly the next day, trading near ~$2.807 per MMBtu early on Friday.

The following part of this series analyzes how various natural gas–exposed securities performed last week.

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