What’s the weather forecast?
Weather forecasts for September 5–11 indicate that temperatures in the United States could remain higher than the five-year average for the same period, except on September 5. 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 this week.
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.
In the week ended September 2, 2016, temperatures were higher than the forecast for the week. Natural gas futures fell 4.2% that week.
On September 1, 2016, the EIA (U.S. Energy Information Administration) announced a 51 Bcf (billion cubic feet) addition in natural gas inventory levels for the week ended August 26, 2016. The markets expected an addition of 42 Bcf to the inventory, according to a report by the Wall Street Journal. The larger-than-expected build led to a 3.3% fall in natural gas October futures (UNG) (DGAZ) (BOIL) (FCG) (UGAZ) (GASL) on September 1, 2016.
The above analysis could be important for natural-gas-tracking commodity ETFs such as the ProShares Ultra Bloomberg Natural Gas (BOIL), the Direxion Daily Natural Gas Related Bear 3X ETF (GASX), and the Direxion Daily Natural Gas Related Bull 3X ETF (GASL).