Why the Weather Could Mean Trouble for Natural Gas Bulls

Rabindra Samanta - Author

Sep. 26 2016, Published 11:12 a.m. ET

What’s the weather forecast?

The weather forecast for September 26 to October 2, 2016, indicates that temperatures in the United States could remain lower than the five-year average for the period.

Lower temperatures reduce the use of natural gas (UNG) (DGAZ) (BOIL) (FCG) (UGAZ) (GASL) for cooling purposes during the summer, which could be a bearish catalyst for natural gas in the week.

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El Niño anomalies

Natural gas use 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, which is 67% higher than levels in 2015 and 53% higher than the five-year average.

In the week ending September 23, 2016, temperatures were higher than had been forecast. Natural gas futures were flat that week.

Inventory data

On September 22, 2016, the EIA (US Energy Information Administration) announced a 52 Bcf (billion cubic feet) addition to natural gas inventory levels in the week ending September 16, 2016. The market had expected an addition of 53 Bcf to the inventory, according to a report by the Wall Street Journal.

The effect on ETFs

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


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