Natural gas prices
December natural gas futures contracts fell 0.7% and closed at $2.77 per MMBtu (million British thermal units) on November 3, 2016. Prices fell due to warmer-than-normal weather. The rise in US natural gas inventory, which was in line with market expectations, also pushed natural gas prices to an eight-day low.
Lower natural gas prices usually have a negative impact on the earnings of natural gas producers such as Exco Resources (XCO), Southwestern Energy (SWN), WPX Energy (WPX), and Antero Resources (AR).
The United States Natural Gas ETF (UNG) follows US natural gas futures. It fell 1.1% to $7.41 on November 3, 2016. The United States Natural Gas ETF (UNG) is also down 9.7% in the last five trading sessions.
The weather is expected to be cooler across the Northeastern parts of the United States from November 3 to November 9, 2016. However, the rest of the United States will experience warmer-than-normal weather next week.
About 50% of US households use natural gas for heating. Cold winters drive the demand for natural gas either to fire heating furnaces or for natural-gas-fired electricity generation to power heaters. The rise in demand impacts inventories. We’ll learn more about US natural gas inventories in part three and part four of this series.
Temperatures in the lower 48 states averaged 56 degrees for the week ended October 27, 2016, which was nine degrees lower than the previous week. Temperatures during the week were two degrees lower than they were in the same period in 2015. However, they are two degrees higher than normal temperatures for this period of the year.
Impact on stocks and ETFs
The ups and downs in crude oil and natural gas prices affect earnings for natural gas producers such as Exco Resources (XCO), WPX Energy (WPX), Rex Energy (REXX), and Antero Resources (AR).
Uncertainty in crude oil and natural gas also impacts funds such as the iShares Global Energy (IXC), the ProShares Ultra Bloomberg Crude Oil ETF (UCO), the Direxion Daily Natural Gas Related Bull 3x ETF (GASL), the United States Brent Oil ETF (BNO), the United States Oil ETF (USO), and the First Trust ISE-Revere Natural Gas ETF (FCG).
In this series, we’ll cover the 2016 highs and lows for natural gas prices. We’ll also look at natural gas inventories, the natural gas rig count, production, consumption, the U.S. Commodity Futures Trading Commission’s Commitment of Traders report, and some price forecasts for natural gas.
Let’s start by looking at US natural gas prices during the early morning hours of November 4, 2016.