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Natural Gas Prices Hit 3-Year Low on Weak Demand Cues

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Natural gas prices sink 

November natural gas futures plunged by 4.18% and settled at $2.286 per MMBtu (British thermal units in millions) on October 23, 2015. Prices fell for the third day due to mild winter estimates and weak demand cues. ETFs like the United States Natural Gas ETF (UNG), which follow the US benchmark, followed natural gas prices in Friday’s trade. UNG fell 3.13% and settled at $10.52 on October 23, 2015.

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Weather and inventory 

The latest meteorological estimates suggest that winter in the United States could be warmer than normal during the next couple of weeks. Weather is expected to be mild for the week ending November 6, 2015. Bearish traders could be betting big on mild weather estimates. Mild weather curbs heating demand in winter. The drop in heating demand should impact natural gas demand because US households use 49% of their natural gas for heating. So the weak demand should continue to pressure natural gas prices, and US natural gas inventories could rise in the short term.

As a result, natural gas prices hit a three-year low in Friday’s trade. Last week, the EIA (U.S. Energy Information Administration) reported that the natural gas inventory rose by 81 Bcf (billion cubic feet) for the week ended October 16. US natural gas inventories rose for the 29th straight week. Rising natural gas inventories also weigh on natural gas prices.

US CFTC

The CFTC (U.S. Commodity Futures Trading Commission) released its weekly COT (“Commitment for Traders”) report on October 23, 2015. The report projected that hedge funds raised their bearish bets to 50,993 contracts compared to 18,754 long positions for the week ending October 20, 2015. This suggests bearish sentiment for natural gas prices over the short term. The long-term lower natural gas prices should affect US upstream players like Rex Energy (REXX), Antero Resources (AR), Range Resources (RRC), and EXCO Resources (XCO). The companies’ natural gas output mix is more than 60% of their total production. They also affect ETFs like the Fidelity MSCI Energy ETF (FENY) and the Vanguard Energy ETF (VDE).

In this series, we’ll look at natural gas prices and fundamentals. For an in-depth fundamental look at oil and gas as well as related companies, sectors, and drivers, visit Market Realist’s Energy and Power page.

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