How’s the Weather Impacting Natural Gas?



Mild weather ahead for natural gas

The weather forecast for May 30–June 5, 2016, indicates that temperatures could remain higher than the five-year average. Higher temperatures during the cold season can reduce the usage of natural gas (BOIL) for heating purposes.

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EI Nino anomalies

The natural gas usage for heating was reduced due to mild weather in the colder months during the 2015–2016 winter. El Nino’s high intensity kept the weather warmer than expected. As a result, at the end of March 2016, the US natural gas inventory was at 2.5 trillion cubic feet. That’s 67% above the 2015 levels and 53% above the five-year average.

In the week ending May 27, 2016, the actual temperatures were lower than the forecast between May 23 and May 27. However, natural gas futures were under pressure due to bearish sentiments surrounding the supply glut.

The above analysis could be important for natural gas–weighted stocks such as EXCO Resources (XCO), Ultra Petroleum (UPL), and Antero Resources (AR).

In the final part of this series, we’ll look at crude oil’s price performance compared to natural gas and the S&P 500 Index (SPY) (SPXL).


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