How Weather Could Be a Bullish Catalyst for Natural Gas

What’s the weather forecast?

The weather forecast for September 12 to September 18, 2016, indicates that temperatures in the United States could remain higher than the five-year average for the same period.

Higher temperatures increase the use of natural gas (UNG) (DGAZ) (BOIL) (FCG) (UGAZ) (GASL) for cooling purposes during the summer. This could be a bullish catalyst for natural gas in the week.

How Weather Could Be a Bullish Catalyst for Natural Gas

El Niño anomalies

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

How Weather Could Be a Bullish Catalyst for Natural Gas

In the week ended September 9, 2016, temperatures were higher than had been forecast. Natural gas futures rose 0.2% that week.

Inventory data

On September 8, the EIA (U.S. Energy Information Administration) announced a 36 Bcf (billion cubic feet) addition to natural gas inventory levels in the week ended September 2. The market expected an addition of 43 Bcf to the inventory, according to a report by the Wall Street Journal. The smaller-than-expected rise led to a ~4.9% rise in natural gas October futures on September 8.

The above analysis could be important for natural gas–tracking commodity ETFs such as the ProShares Ultra Bloomberg Natural Gas ETF (BOIL), the Direxion Daily Natural Gas Related Bear 3X ETF (GASX), and the Direxion Daily Natural Gas Related Bull 3X ETF (GASL).

In the next part of this series, we’ll take a look at the recent impact of crude oil on the S&P 500 Index (SPY) (SPXL).