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Winter Weather and Inventories Could Impact Natural Gas Prices

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Natural gas inventories 

As we discussed in the previous part, US natural gas inventories are 8.2% more than their five-year average. However, this surplus is shrinking. If the trend continues, the surplus could turn into a deficit—particularly if the winter is harsh. A harsh winter can cause prices to rise sharply.

Natural gas supply, demand, and inventories

The above chart illustrates that US natural gas inventories are expected to fall to 2.1 Tcf per day in April 2017—18% less than the same period in 2016. A colder-than-usual winter in 2016–2017 and improving demand could reduce the surplus natural gas inventories. So, shrinking natural gas inventories along with steady demand could support natural gas prices going into 2017.

US natural gas price forecasts 

Aegent Energy Advisors estimates that US natural gas prices are expected to trade below $3.27 per MMBtu (million British thermal units) this winter from November 2016 to March 2017.

The U.S. Energy Information Administration estimates that US natural gas prices would average $2.42 per MMBtu in 2016 and $2.87 per MMBtu in 2017.

The International Monetary Fund forecasts that US natural gas prices will average $2.3 per MMBtu in 2016, $3 per MMBtu in 2017, $3.1 per MMBtu in 2018, and $3.3 per MMBtu in 2019, respectively.

Higher natural gas prices have a positive impact on oil and gas producers’ earnings such as WPX Energy (WPX), Gulfport Energy (GPOR), EXCO Resources (XCO), and Memorial Resources (MRD).

Natural gas prices also impact funds such as the VelocityShares 3x Inverse Natural Gas ETN (DGAZ), the First Trust ISE-Revere Natural Gas ETF (FCG), and the Direxion Daily Natural Gas Related Bull 3X Shares ETF (GASL).

For related analysis, you can visit Market Realist’s Energy and Power page.

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