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Natural Gas and the Weather Forecast: What to Expect

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Mild weather ahead for natural gas

The weather forecast for May 9–15, 2016, indicates that the temperatures could remain higher than the five-year average temperatures for first five days of this week for May 9–13, 2016.

The mild weather forecast for first five days from May 9–13, 2016, could negatively impact natural gas (UNG) (BOIL) futures as well as natural gas–weighted stocks such as EXCO Resources (XCO), Ultra Petroleum (UPL), and Antero Resources (AR).

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The natural gas usage as a heating material is reduced due to mild weather in the colder months. During the 2015–2016 winter, the higher intensity of El Niño kept the weather warmer than expected. As a result, at the end of March 2016, US natural gas inventories were at 2.5 trillion cubic feet. That’s 67% above the levels in 2015 and 53% above the five-year average. Natural gas futures touched an 18-year low on March 4, 2016.

In the week ending May 6, 2016, the temperatures were lower compared to the forecast for the last four days. Initially, natural gas futures fell. However, they recovered as the temperatures dropped. In the above graph, you can see the price impact of weather on natural gas prices last week.

In the final part of this series, we’ll see crude oil’s price performance relative to natural gas and the S&P 500 index.

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