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Weather and Inventory Drive Natural Gas Prices

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Weather estimates 

Commodity Weather Group estimates cold weather over the next month in the US. It also added that the weather would be cooler in the Central and the Midwest regions of the US. Natural gas accounts 49% of US households’ heating needs. The colder weather will drive the heating needs and support natural gas prices in the oversupplied market. AccuWeather estimates cold weather in Minneapolis during the first week of October 2015.

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Inventory 

Last week, the EIA (U.S. Energy Information Administration) reported that natural gas stocks rose by 106 Bcf (billion cubic feet) to 3,440 Bcf for the week ending September 18, 2015. The US natural gas stockpile rose for the 25th straight week for the same period. The rising natural gas production and mild weather estimates led to the rise in the natural gas stockpile.

Market surveys projected that the natural gas stocks could rise by 97 Bcf for the week ending September 18, 2015. The better-than-expected natural gas stockpile boosted natural gas prices. The EIA will release the next natural gas storage report on October 1, 2015. The consensus of the rising inventory will continue to put pressure on natural gas prices.

The recent rise in natural gas prices benefits oil and gas producers like Southwestern Energy (SWN), Rice Energy (RICE), and Cimarex Energy (XEC). Combined, they account for 3.55% of the SPDR Oil and Gas ETF (XOP). These companies’ natural gas production mix is greater than 43% of their total production. The rise in natural gas prices also impacts energy ETFs like the Energy Select Sector SPDR ETF (XLE) and XOP.

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