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Weather and US Natural Gas Inventories Impact Natural Gas Prices

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Natural gas prices 

June natural gas futures contracts trading in NYMEX rose by 1.5% and settled at $2.03 per MMBtu (British thermal units in millions) on Thursday, May 19, 2016. Prices rose due to the less-than-expected rise in the natural gas inventory. The United States Natural Gas ETF (UNG) rose by 2.3% to $6.61 on the same day. The SPDR S&P 500 ETF (SPY) fell slightly by 0.33% and settled at $204.24 on May 19, 2016.

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Weather outlook

The latest forecasting models suggest that the Great Lakes and the northeastern states in the US might experience moderate spring weather through May 24, 2016. This would curb the cooling needs and have a negative impact on the demand for natural gas. Half of all US homes use natural gas for heating and cooling purposes. As a result, this could have a negative impact on natural gas prices. Low demand adds to inventories. We’ll learn more about the nationwide natural gas inventory in the next part of this series.

For the week ending May 12, 2016, temperatures in the lower 48 states of the US averaged 61 degrees Fahrenheit. It’s 1.1 degrees higher than normal. It’s also 6% more than the same period in 2015. The South Atlantic, East South Central, and WS Central US census divisions of the US reported more cooling degree days than normal for the week ending May 12, 2016.

Natural gas price volatility 

Natural gas prices are up more than 25% in the last two months due to cold weather estimates, short covering, and traders watching out for possible impacts from La Nina. However, natural gas prices hit a 17-year low on February 28, 2016, due to mild winter weather and oversupply. US natural gas prices fell 60% between 2014 and early 2016.

The roller coaster ride in natural gas prices impacts natural gas producers such as Gulfport Energy (GPOR), EXCO Resources (XCO), Ultra Petroleum (UPL), and Comstock Resources (CRK). It also impacts ETFs and ETNs such as the Direxion Daily Natural Gas Related Bull 3X Shares ETF (GASL), the VelocityShares 3x Inverse Natural Gas ETN (DGAZ), and the First Trust ISE-Revere Natural Gas ETF (FCG).

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

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