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Natural Gas Prices Fell from a 7-Week High Due to Profit-Booking

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Natural gas prices 

NYMEX-traded natural gas futures contracts for May delivery fell by 2% and settled at $1.96 per MMBtu (British thermal units in millions) on Thursday, March 31, 2016. Prices fell due to profit-booking after testing a seven-week high on the same day. ETFs like the United States Natural Gas ETF (UNG) fell by 1.5% to $6.7 on March 31, 2016. The SPDR S&P 500 ETF (SPY) also fell marginally by 0.3% to $205.6 on the same day.

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Profit-booking 

US natural gas prices tested the intraday high of $2.03 per MMBtu on Thursday, March 31, 2016. This is the highest level since February 2016. Natural gas prices rallied almost 14% in March 2016. The uptick in natural gas prices led to profit-booking. The recent surge in natural gas prices benefits natural gas producers like EV Energy (EVEP), Breitburn Energy (BBEP), Memorial Production (MEMP), Gulfport Energy (GPOR), Cabot Oil & Gas (COG), and Comstock Resources (CRK). 

Weather outlook 

Weather reports suggest that the Midwestern and Northeastern parts of the US will experience colder-than-normal weather in the first week of April 2016. The cold weather will drive the heating demand. In contrast, the western parts of the US will experience warmer-than-normal weather. This will drive the cooling demand. It’s important to note that 50% of US homes use natural gas for heating. Cold weather forecasts will drive the natural gas demand and benefit natural gas prices.

The US natural gas inventory report influenced natural gas prices on March 31, 2016. The next part of the series will focus on the natural gas inventory.

Volatility analysis 

Natural gas prices had the highest settlement of $2 per MMBtu on March 30, 2016, since February 11, 2016. Prices rallied due to short covering and bullish crude oil prices. To learn more, read What Are the Key Bullish Drivers of Crude Oil Prices in 2016? and India and China: Bullish Catalysts for the Global Crude Oil Market.

On the other hand, natural gas prices tested a 17-year low on February 28, 2016, due to mild winter weather and oversupply. Gas prices have lost 40% since May 2015. They have lost 26% year-to-date. The roller coaster ride in natural gas prices impacts ETFs and ETNs like the Fidelity MSCI Energy ETF (FENY), the First Trust ISE-Revere Natural Gas (FCG), and the VelocityShares 3x Inverse Natural Gas ETN (DGAZ).

In this series, we’ll  cover the US natural gas production, consumption, inventory, rig count, and price forecast.

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