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Natural Gas Prices Fall for the First Time in the Last 7 Days

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Natural gas price action 

NYMEX-traded natural gas futures contracts for March delivery fell slightly by 0.41% and closed at $2.18 per MMBtu (British thermal units in millions) on January 28, 2016. Prices fell marginally despite the larger-than-expected fall in the US natural gas inventory.

The United States Natural Gas ETF (UNG) rose by 3.7% and settled at $8.17 in Thursday’s trade. Broader indexes such as the SPDR S&P 500 ETF (SPY) moved in the opposite direction of natural gas prices.

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Inventory update 

On January 28, 2016, the EIA (U.S. Energy Information Administration) published its weekly natural gas in storage report. The government agency reported that the US natural gas inventory fell by 211 Bcf (billion cubic feet) for the week ending January 22, 2016.

The larger-than-expected fall in the natural gas inventory data was priced into natural gas prices. So, natural gas prices and inventory data moved in the same direction in yesterday’s trade. US natural gas prices fell for the first time in the last seven days due to falling natural gas inventories and the cold weather forecast.

The latest forecasting model suggests that the weather could be colder in some parts of the United States for the next two weeks. In contrast, some parts of the United States may experience mild weather. 50% of US households use natural gas for heating purposes. Swinging weather conditions could influence natural gas demand and prices.

Volatility analysis

This is the fourth down day for natural gas prices in the last ten trading sessions. Prices fell by 2.4% more on the average down day than on the average up day during the same period. So far in 2016, natural gas prices have fallen by 4%. They also fell by 19% in 2015 due to long-term oversupply concerns.

Long-term lower gas prices affect the margins of natural gas producers such as Devon Energy (DVN), EXCO Resources (XCO), Anadarko Petroleum (APC), and Southwestern Energy Company (SWN).

Volatility in natural gas prices also affects ETFs and ETNs such as the PowerShares DB Energy ETF (DBE), the Fidelity MSCI Energy Index ETF (FENY), and the VelocityShares 3X Long Natural Gas ETN (UGAZ).

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