MDA Weather Services reported that weather will be above normal temperatures for the fourth week of November 2015 in the United States. Warm weather could be experienced across the eastern, northeastern, mid-Atlantic, and Great Lakes regions of the United States over the next few days. The heating degree days were estimated to be 490 in November 2015 compared to 646 in November 2014. Heating degree days in December are expected to rise, but less than in last year. Higher heating degree days represent more natural gas required to heat because of cold winter.
This implies that November saw a drop in natural gas demand due to mild winter. However, December could drive the demand for natural gas. 49% of US households use natural gas for heating purposes. The cold winter will drive demand and benefit natural gas prices.
The EIA[1. U.S. Energy Information Administration] published its weekly report on natural gas inventory on November 19, 2015. The government agency reported that natural gas stocks rose by 15 Bcf (billion cubic feet) to 4,000 Bcf, or 4 Tcf (trillion cubic feet), for the week ending November 13, 2015. This is the highest record for natural gas inventories. The current natural gas stocks are 11.2% higher than last year’s level of 3,596 Bcf. They are also 5.5% higher than the five-year average of 3,793 Bcf. Record inventory, record production, and mild winter will weigh on natural gas prices.
The depressed natural gas market impacts gas producers such as Cabot Oil & Gas (COG), Newfield Exploration (NFX), EOG Resources (EOG), Range Resources (RRC), and Southwestern Energy (SWN). The uncertainty in the energy market also affects ETFs such as the PowerShares DB Energy ETF (DBE) and the PowerShares DWA Energy Momentum ETF (PXI).