Natural gas prices
Natural gas futures contracts for July delivery rose by 6.1% and closed at $2.61 per MMBtu (British thermal units in millions) on June 9, 2016. Prices rose due to warm weather estimates and a less-than-expected rise in US natural gas inventories. The United States Natural Gas Fund (UNG) also rose by 5.7% to $7.86 on the same day. The SPDR S&P 500 ETF (SPY) fell by 0.2% and closed at $212.04 on June 9, 2016.
The latest weather forecasting models suggest that the weather is expected to be hotter than normal over the next two weeks in the Southwest and Midwest regions of the US. The states in the plains would experience higher-than-normal temperatures for the same period.
Approximately 50% of US households use natural gas for heating and cooling purposes. As a result, hot weather will drive the cooling demand. Summer weather could drive the demand for gas-fired electricity generation to power air conditioning.
The weather outlook will drive the demand for natural gas. It impacts inventories. We’ll learn more about US natural gas inventories in the next part of this series.
Temperatures in the lower 48 states averaged 72 degrees Fahrenheit for the week ending June 2, 2016. This is 10% above the previous week. For the week ending June 2, 2016, temperatures were 7% above normal and 6% above the same period in 2015.
Natural gas price volatility
Natural gas prices hit nearly a nine-month high of $2.63 MMBtu on June 9, 2016. It was the highest level since September 2015. Prices rose more than 36% since May 26, 2016, due to expectations of a hot summer, a smaller-than-expected rise in natural gas inventories, short covering, and traders watching for possible impacts from La Niña. They have gained 3.2% year-to-date. However, they’re down 17% in the past year due to mild weather, weak demand, high inventory, and oversupply.
The 52-week range for US natural gas prices is $1.93–$3.19 per MMBtu.
Volatility in natural gas prices influences natural gas producers like WPX Energy (WPX), Antero Resources (AR), EXCO Resources (XCO), and Comstock Resources (CRK). It also impacts ETFs and ETNs like the Direxion Daily Natural Gas Related Bull 3x Shares ETF (GASL), the VelocityShares 3x Inverse Natural Gas ETN (DGAZ), the SPDR S&P Oil & Gas Exploration & Production ETF (XOP), and the First Trust ISE-Revere Natural Gas ETF (FCG).
In this series, we’ll cover US natural gas inventories, the natural gas rig count, the U.S. Commodity Futures Trading Commission’s “Commitments of Traders” report, production, consumption, and price forecasts.
The US natural gas rig count peaked at 1,606 rigs on September 12, 2008. In contrast, it hit a new low of 82 rigs in the week ending June 3, 2016.
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