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Cold Weather Forecasts Drive Natural Gas Prices Higher

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Natural gas price movement

February natural gas futures contracts trading on NYMEX rose slightly by 1% and closed at $2.18 per MMBtu (British thermal units in millions) in yesterday’s trade. Natural gas prices rose due to the consensus of falling natural gas inventories and the cold weather forecast. The United States Natural Gas Fund (UNG) rose by 0.25% and closed at $7.88 in yesterday’s trade. The SPDR S&P 500 ETF (SPY) diverged from natural gas prices.

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Inventory update

The EIA (U.S. Energy Information Administration) is scheduled to release its weekly natural gas inventory report today. The consensus of falling natural gas inventories will support natural gas prices. US natural gas prices rose for the fifth straight day yesterday due to falling natural gas inventories and the cold weather forecast. To learn more about natural gas inventories, read the next part of this series.

Cold weather forecast

Commodity Weather Group has reported that the weather will be colder for the next two weeks over several parts of the United States. However, some areas will experience mild weather, which curbs the heating needs and puts pressure on natural gas prices. This is relevant because 50% of US households use natural gas for heating purposes.

Natural gas prices have rallied 4% this week. However, they fell 19% in 2015 due to oversupply concerns. The recent surge in natural gas prices benefits natural gas producers like EXCO Resources (XCO), Rice Energy (RICE), Anadarko Petroleum (APC), and Southwestern Energy Company (SWN).

The roller-coaster ride in natural gas prices also affects ETFs and ETNs like the PowerShares DB Energy Fund (DBE), the Fidelity MSCI Energy Index ETF (FENY), and the VelocityShares 3X Long Natural Gas ETN (UGAZ).

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