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Natural Gas above $3: How Are Traders Positioning Themselves?

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Natural gas prices

In the last five trading sessions, January’s natural gas (UNG) (FCG) futures have risen 7.8%. They closed at ~$3.15 per MMBtu (million British thermal units) on November 23, 2016, which was about 1.5% higher than the price in the previous session.

The rise in natural gas prices coincides with a fall in natural gas inventories. In the last few trading sessions, natural gas prices have risen with falling temperatures in the United States. As the weather turns cooler, natural gas usage could rise with heating usage.

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Natural gas inventories

Last winter, natural gas usage for heating was weak due to mild temperatures. At the end of March 2016, US natural gas inventories were at 2.5 trillion cubic feet, which was 67.0% higher than 2015 levels and 53.0% higher than the five-year average. As a result, prices were weak. Natural gas futures hit a 17-year low of $1.64 on March 3, 2016.

During the week ended November 18, 2016, natural gas inventories were 4,045 Bcf (billion cubic feet), which was 6.3% higher than the five-year average and 1.0% higher than last year’s level. On December 1, 2016, the EIA (U.S. Energy Information Administration) will announce its inventory data for the week ended November 25, 2016.

Key moving averages

On November 23, 2016, natural gas futures were trading ~3.7% below their 100-day moving average, but 5.4% above their 20-day moving average, which shows the recent short-term bullishness in natural gas prices.

Natural gas sentiment impacts ETFs such as the ProShares Ultra Oil & Gas (DIG), the PowerShares DWA Energy Momentum ETF (PXI), the Vanguard Energy ETF (VDE), the iShares US Energy (IYE), and the Fidelity MSCI Energy ETF (FENY).

In the next part of this series, we’ll look at crude oil and natural gas rig counts. We’ll see how they impact natural gas production and prices.

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