What’s the weather forecast?
The weather forecast for October 31–November 6, 2016, indicates that temperatures in the US could remain higher than the five-year average for this time of the year. Higher temperatures could delay the onset and reduce the winter heating demand for natural gas (UNG) (DGAZ) (BOIL) (FCG) (UGAZ) (GASL). It could be a bearish catalyst for natural gas prices. November marks the start of the winter season in the US.
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—67% higher than the levels in 2015 and 53% higher than the five-year average. Natural gas prices hit a 2016 and 17-year low of $1.64 on March 3, 2016.
In the week ending October 28, 2016, the temperatures were higher than expected. Natural gas December futures fell 7.6% because of the warmer weather cutting expectations of heating demand for natural gas.
Natural Gas Inventory data
On October 27, 2016, the EIA (U.S. Energy Information Administration) announced a 73 Bcf (billion cubic feet) addition to the natural gas inventory levels in the week ending October 21, 2016. The market expected an addition of 72 Bcf to the inventory, according to a report by the Wall Street Journal.
Impact 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).