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Natural Gas Prices Fell Due to the Warm Winter Weather Forecast

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Natural gas price action 

December natural gas futures contracts fell by 2.8% and closed at $2.25 per MMBtu (British thermal units in millions) on November 2, 2015. Prices fell due to mild winter estimates and weak demand cues. ETFs like the United States Natural Gas ETF (UNG) leveraged the performance of natural gas prices in yesterday’s trade. UNG fell by 3.3% and settled at $9.49 on Monday, November 2, 2015.

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The weather forecasting models suggest that the natural gas demand could slow down due to mild winter weather estimates. Nat Gas Weather reported that mild weather could be experienced in the central and eastern parts of the US over the next weekend. The natural gas market has been under immense pressure due to moderate winter climates, weak demand cues, and rising production estimates.

Meanwhile, the EIA (U.S. Energy Information Administration) reported that the natural gas in storage could rise by 63 Bcf (billion cubic feet) for the week ending October 23, 2015. The rising natural gas inventory also adds pressure to the oversupplied natural gas market. Falling natural gas prices impact US upstream producers like Rice Energy (RICE), Southwestern Energy (SWN), Antero Resources (AR), and EXCO Resources (XCO). These companies’ natural gas production mixes are more than 60% of their production portfolio. Energy ETFs like the First Trust Energy AlphaDEX ETF (FXN) and the Guggenheim S&P Equal Weight Energy ETF (RYE) are also affected by volatility in the oil and gas market.

Volatility analysis

This is the fifth down day for natural gas prices over the last ten days. Prices fell by 3.2% more on the average down days than on the average up days in the last ten days. Natural gas futures were the worst performers across commodities in yesterday’s trade. Prices fell by 21.5% YTD (year-to-date) due to the wide gap between supply and demand.

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, please visit Market Realist’s Energy and Power page.

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