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Natural Gas Prices Fell ~8% since February 19 Due to Weak Demand

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Natural gas price movement 

NYMEX-traded natural gas futures contracts for March delivery fell by 2.7% and closed at $1.80 per MMBtu (million British thermal units) on Friday, February 19, 2016. Gas prices fell for the second straight day due to a cold weather forecast and weak demand cues.

The United States Natural Gas ETF (UNG) also fell by 3% and settled at $6.62 on Friday. In contrast, the SPDR S&P 500 ETF (SPY) was almost flat the same day.

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Weather update

The latest forecasting models suggest that weather would be warmer than normal during late February 2016 and early March 2016 in the several regions of the US. A warm weather forecast is expected across the Northeastern US over the next two weeks.

The warm weather forecast during the peak winter season of November to March should curb the heating demand and negatively affect natural gas prices. Weak demand leads to a rise in natural gas stocks.

Inventory update

The EIA (U.S. Energy Information Administration) published its weekly natural gas in storage report on February 18, 2016. The data highlighted that natural gas stocks fell by 158 Bcf (billion cubic feet) for the week ended February 12.

The consensus of rising supplies led to collateral damage of natural gas prices in Thursday’s trading. Read the next part of this series for more detail on US natural gas inventories.

Volatility analysis

US natural gas prices lost almost 8% in the last two trading sessions due to weak demand due to a warmer-than-normal winter and record natural gas supplies. Natural gas prices are trading close to 16-year lows, and they have fallen more than 25% in 2016. The historic low natural gas prices can negatively impact natural gas producers like EXCO Resources (XCO), Rice Energy (RICE), Devon Energy (DVN), QEP Resources (QEP), and Southwestern Energy (SWN).

The roller coaster ride of natural gas prices also affects ETFs and ETNs such as the PowerShares DB Energy ETF (DBE), the VelocityShares 3x Inverse Natural Gas ETN (DGAZ), the Fidelity MSCI Energy ETF (FENY), and the VelocityShares 3X Long Natural Gas ETN (UGAZ).

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