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Why Natural Gas Prices Have Fallen by 4.6% in the Last 3 Days

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Natural gas prices fall again 

December natural gas futures contracts plunged by 3% and settled at $2.28 per MMBtu (British thermal units in millions) on November 19, 2015. Prices fell for the third-consecutive day due to long-term oversupply concerns and rising natural gas inventories.

Gas-tracking ETFs such as the United States Natural Gas ETF (UNG) also followed the price path of natural gas prices in Thursday’s trade. UNG fell by 3.7% to $9.36 on November 19, 2015.

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Weather and inventory update 

The EIA (U.S. Energy Information Administration) published its Weekly Natural Gas Storage Report on November 19, 2015. The government data showed that natural gas in storage rose by 15 Bcf (billion cubic feet) for the week ending November 13, 2015.

Bloomberg surveys estimated that the natural gas inventory could increase by 19 Bcf for the same period. Record natural gas inventories dragged natural gas prices for the third-consecutive day. Natural gas prices fell 4.6% in the last three days due to weak demand resulting from mild weather.

The Commodity Weather Group reported that eastern and midwestern parts of the United States were warmer compared to normal winter weather. These areas are usually the high natural gas consuming regions during the winter.

49% of US households use natural gas for heating purposes. The warm winter weather curbs natural gas demand and negatively influences natural gas prices. 

Volatility 

Weak demand cues and rising inventories led to a massive sell-off among bearish natural gas traders. Natural gas prices fell for the sixth time in the last ten trading sessions.

Prices rose 1.4% more on the average up day than on the average down day during the last ten days. December natural gas futures were the worst performers in yesterday’s trade. Prices fell more than 22% YTD (year-to-date) due to oversupply concerns.

US upstream players such as Southwestern Energy (SWN), Rice Energy (RICE), EXCO Resources (XCO), Chesapeake Energy (CHK), and Devon Energy (DVN) are affected by fluctuations in natural gas prices.

ETFs such as the Guggenheim S&P Equal Weight Energy ETF (RYE) and the First Trust Energy AlphaDEX ETF (FXN) are also affected due to the roller coaster ride of natural gas prices.

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

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