Natural gas price action
November natural gas futures contracts fell by 2.6% and closed at $2.45 per MMBtu (British thermal units in millions) on October 15, 2015. Prices fell due to the larger-than-expected rise in the natural gas inventory. ETFs like the United States Natural Gas ETF (UNG) mirrored the direction of natural gas prices in Thursday’s trade. UNG fell by 2.8% and closed at $11.64 on October 15, 2015.
The EIA (U.S. Energy Information Administration) released its weekly natural gas stockpile report on October 15, 2015. The government data showed that the natural gas inventory rose by 100 Bcf (billion cubic feet) for the week ending October 9, 2015. Bloomberg surveys estimated that natural gas stocks could rise by 93 Bcf for the same period. The better-than-expected rise in the natural gas stocks weighed on natural gas prices. As a result, natural gas prices fell in yesterday’s trade despite the cold weather estimates.
Commodity Weather Group reported that cold weather could be experienced across the US over the next week. The eastern parts of the Mississippi River could also experience cold weather during the same period. Cold weather drives the demand for natural gas. It’s important to note that 50% of US households use natural gas for heating purposes. As a result, cold weather could drive the natural gas demand and support natural gas prices.
The US CFTC (Commodity Futures Trading Commission) published its COT (Commitment for Traders) report on October 9, 2015. The government data showed that hedge funds increased their long positions to 278,318 compared to 104,851 short positions for the week ending October 6, 2015. The increase in the natural gas long positions suggests that hedge funds are bullish about natural gas prices. However, prices fell by 15% YTD (year-to-date) due to the oversupply concerns.
Falling natural gas prices impact natural gas producers’ margins like Stone Energy (SGY), Chesapeake Energy (CHK), Magnum Hunter Resources ](MHR), and EXCO Resources (XCO). These stocks’ natural gas production mixes are more than 59% of their total production. They also impact ETFs like the Vanguard Energy ETF (VDE) and the Fidelity MSCI Energy Index ETF (FENY).
Continue to the next part of this series for a closer look at the natural gas inventory data for the week ending October 9.