Natural gas prices
July natural gas futures contracts trading in NYMEX rose by 1.6% and settled at $2.62 per MMBtu (British thermal units in millions) on June 17, 2016. Prices rose due to the expectation of a rise in demand as a result of warm weather estimates. ETFs like the United States Natural Gas Fund (UNG) rose by 2.2% to $7.95 on the same day.
The National Weather Service reported that the weather is expected to be warmer than normal over the next few weeks. The western, northeastern, and southwest regions in the US will experience higher temperatures than the other states during the same period.
It’s important to note that 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. However, some traders think that weather-related demand is overhyped.
For the week ending June 15, 2016, temperatures in the lower 48 states averaged 71 degrees Fahrenheit. This is 1% less than the previous week. Temperatures were 4% above normal for the week ending June 15, 2016. These temperatures are equal to the same period in 2015. The South Atlantic and central regions experienced hot weather for the week ending June 15, 2016.
Natural gas price volatility
Natural gas prices rose for the third consecutive week. It hit the highest level on June 17, 2016, since September 2015. Meanwhile, prices were trading at $2.66 per MMBtu in electronic trade on June 20, 2016, at 2:30 AM EST. Prices rose more than 34% since May 26, 2016, due to expectations of a hot summer, short covering, and traders watching for possible impacts from La Niña. They gained 6% year-to-date. However, they’re down 15% in the last year due to mild weather, weak demand, strong supplies, and high inventories.
The 52-week range for US natural gas prices is $1.93–$3.16 per MMBtu.
The roller coaster ride in natural gas prices influences natural gas producers like WPX Energy (WPX), Antero Resources (AR), and Comstock Resources (CRK). It also impacts ETFs and ETNs like the Direxion Daily Natural Gas Related Bull 3x Shares ETF (GASL) and the SPDR S&P Oil & Gas Exploration & Production ETF (XOP).
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.