Natural gas prices
July natural gas futures contracts fell by 1.1% and closed at $2.39 per MMBtu (British thermal units in millions) on Friday, June 3, 2016. Prices fell on June 3, 2016, after rallying for four straight days. The United States Natural Gas Fund (UNG) fell by 0.14% to $7.24 on the same day. The SPDR S&P 500 ETF (SPY) also fell by 0.3% and settled at $210.28 on June 3, 2016.
The weather is expected to be hotter than normal over the next two weeks in the US, according to the latest weather forecasting models. Hot weather will drive the cooling demand. Approximately 50% of US households use natural gas for heating and cooling purposes. As a result, natural gas prices are up 11% for the week. The 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.
For the week ending May 26, 2016, temperatures in the lower 48 states averaged 65 degrees Fahrenheit. This is 1% above the normal temperature. I’s the same as the temperatures in the same period in 2015.
Natural gas price volatility
Natural gas prices hit a five-month high of $2.45 MMBtu on June 3, 2016. It’s the highest level since January 8, 2016. Prices rose by 24% in the last five trading sessions due to expectations of a hot summer, a smaller-than-expected rise in natural gas inventories, and bargain buying. Likewise, natural gas prices are up 23% in the last three months due to warm weather estimates, short covering, and traders watching out for possible impacts from La Niña. They have fallen 2% YTD (year-to-date) and 20% in the past year due to mild weather, weak demand, high inventory, and oversupply.
The 52-week range for US natural gas prices is $1.94 per MMBtu and $3.19 per MMBtu.
The roller coaster ride in natural gas prices influences natural gas producers like Gulfport Energy (GPOR), Rex Energy (REXX), EXCO Resources (XCO), and Comstock Resources (CRK). They also impact ETFs and ETNs like 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 US natural gas inventories, the natural gas rig count, production, consumption, and price forecasts.