uploads///The Weather Ahead

How Does the Weather Drive Natural Gas Prices?

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Jun. 27 2016, Published 4:55 p.m. ET

Mild weather ahead for natural gas

The weather forecast for June 27 to July 3, 2016, indicates that temperatures could remain lower than the five-year average except on June 27. High temperatures increase the use of natural gas (BOIL) (FCG) (UGAZ) for cooling purposes. Lower temperature could be a bearish catalyst for natural gas prices.

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EI Niño anomalies

Natural gas usage for heating was lower due to mild weather in the 2015–2016 winter season. El Niño’s intensity kept temperatures warmer than normal. As a result, at the end of March 2016, the US natural gas inventory was at 2.5 trillion cubic feet, which is 67% higher than 2015 levels and 53% higher than the five-year average.

In the week ended June 24, 2016, temperatures were higher than forecasts for the week. Warmer weather boosted natural gas prices, although inventory additions were higher than analyst expectations last week. On June 23, the EIA (U.S. Energy Information Administration) announced a 62 Bcf (billion cubic feet) addition to natural gas (UNG) (GASL) inventory levels for the week ended on June 17. Analysts expected an addition of 61 Bcf, according to the S&P Global Platts.

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

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