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Natural Gas Prices Fell 12% in 2 Days and Hit Monthly Lows

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Natural gas prices

March natural gas futures contracts trading in NYMEX fell by 5.9% and settled at $2.02 per MMBtu (British thermal units in millions) on January 28, 2016. Prices fell by 12% in the last two trading sessions due to the mild winter weather forecast and heavy surplus of natural gas supplies. The United States Natural Gas ETF (UNG) fell by 5% and closed at $7.48 during trade on February 2. The SPDR S&P 500 ETF (SPY) also fell in the direction of natural gas prices.

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Weather and inventory update  

The updated weather models suggest that US weather would be warmer than normal for the next few weeks. It’s important to note that 50% of US households use natural gas for heating purposes. Mild winter weather would curb the heating needs and impact natural gas prices. In the third part of this series, we’ll provide a detailed weather update.

Secondly, the U.S. Energy Information Administration is scheduled to release its weekly natural gas in storage report on February 4, 2016. The coldest period of the winter season is from December to January. However, the weather estimates are milder. So, we could see a less-than-expected natural gas withdrawal. The long-term record natural gas production and mild winter weather would continue to put pressure on natural gas prices. Read the next part of the series for the latest updates on the US natural gas inventory.

Volatility analysis

US natural gas prices fell by 12% in the last two days due to the wide gap between supply and demand. So far, gas prices fell by 14% in 2016. They fell by 19% in 2015. Historically low prices impact the predictability of natural gas producers like EXCO Resources (XCO), Rex Energy (REXX), QEP Resources (QEP), Anadarko Petroleum (APC), and Southwestern Energy (SWN).

The ups and downs in the oil and gas market also impact ETFs and ETNs like 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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