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Natural Gas Prices Rally from Short Covering

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Natural gas price action

For the week ended December 25, 2015, January natural gas futures rose by 14.8% and settled just above $2.03 per MMBtu (British thermal units in millions) on Thursday, December 24. In electronic trading, prices were trading at $2.13 per MMBtu in the early hours of trading on December 28, 2015.

Prices rose due to short covering and a better-than-expected natural gas inventory fall. The United States Natural Gas ETF (UNG), which tracks the performance of US benchmark natural gas prices, also rose on Thursday.

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Short covering 

The U.S. CFTC (Commodity Futures Trading Commission) reported that US hedge funds reduced their short positions for the week ended December 22, 2015, from the peak in November 2015. It suggests they might eye the bottom fishing opportunity, as prices are trading at a record low.

The consensus about cold weather also boosted natural gas prices. Updated information from meteorologists suggests that weather in central parts of the United States could be colder through the last week of December 2015 and early January 2016. Prices recovered from a 17-year low of $1.68 on December 18 due to the cold weather forecast and a better-than-expected fall in natural gas inventory.

The EIA (U.S. Energy Information Administration) reported that the US natural gas stockpile fell by 32 Bcf (billion cubic feet) for the week ended December 18, 2015. The larger-than-expected fall in natural gas inventory suggested a better demand or less supplies.

US natural gas prices rose by 14.3% for the week. The increase in natural gas prices benefits natural gas producers such as Cabot Oil & Gas (COG), EOG Resources (EOG), Rice Energy (RICE), Cimarex Energy (XEC), and Southwestern Energy (SWN). However, natural gas prices have fallen 30% so far in 2015 due to oversupply concerns. You can read more about production in the next part of the series.

ETFs such as the Fidelity MSCI Energy ETF (FENY), the PowerShares DB Energy ETF (DBE), and the PowerShares DWA Energy Momentum ETF (PXI) were also impacted by uncertainty in the oil and gas market.

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