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Natural Gas Prices Fell despite Hot Summer Weather Forecast

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Natural gas prices 

August natural gas futures contracts fell by 0.37% and closed at $2.72 per MMBtu (million British thermal units) on Thursday, July 14, 2016. Prices fell due to the larger-than-expected rise in natural gas inventories.

ETFs such as the United States Natural Gas ETF (UNG), which tracks gas futures, also fell by 0.25% to $8.10 on July 14, 2016.

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Weather outlook

Updated weather models suggest that temperatures would be hotter than normal between July 14 and July 20 in the Southern and Eastern United States. However, moderate temperatures should be experienced in the Northern and Central parts of the US during the same timeframe.

National Centers for Environmental Information reported that the period from January 2016 to May 2016 was the fourth-warmest period on record across the US.

Around 50% of US households use natural gas for heating and cooling. Hot summer weather drives demand for gas-fired electricity generation to power air conditioning. The rise in demand impacts inventories. We’ll learn more about US natural gas inventories in the next part of this series.

For the week ended July 7, 2016, temperatures in the Lower 48 states averaged 75 degrees. This is the same as the week ended June 30, 2016. Temperatures were 1% lower than normal compared to the corresponding period in 2015.

Natural gas prices peaks and lows in 2016

US natural gas futures hit a 2016 high of $2.99 per MMBtu on July 1, 2016. On July 14, 2016, prices are up by 20% YTD (year-to-date) due to expectations of a hot summer, short covering, and traders watching for possible impacts from La Niña. US natural gas futures hit an all-time high of $13.50 per MMBtu in 2008.

In contrast, natural gas prices hit a 17-year low of $1.64 on March 3, 2016, due to mild weather, weak demand, strong supplies, and high inventories. US natural gas futures were trading at ~$2.71 per MMBtu in electronic trading on July 15 at 7:00 AM EDT.

The 52-week range for US natural gas prices is $1.99–$3.18 per MMBtu. Prices have fallen by ~13.1% over the last year.

Volatility in natural gas prices impacts natural gas producers such as Exco Resources (XCO), Gulfport Energy (GPOR), and Memorial Resources (MRD). It also affects funds such as the Direxion Daily Natural Gas Related Bull 3x Shares ETF (GASL) and the First Trust ISE-Revere Natural Gas ETF (FCG).

Series focus

In this series, we’ll cover US natural gas inventories, the natural gas rig count, production, consumption, the US Commodity Futures Trading Commission’s Commitments of Traders report, and price forecasts.

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