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Will the Weather Boost US Natural Gas Prices?

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Nov. 18 2016, Published 9:45 a.m. ET

Natural gas prices  

Natural gas futures contracts for December delivery fell 2.2% and closed at $2.7 per MMBtu (million British thermal units) on November 17, 2016. Prices fell due to warmer-than-normal weather. The rise in the US natural gas inventory, which was in line with market expectations, also pressured natural gas prices.

Lower natural gas prices usually have a negative impact on natural gas producers’ earnings such as EXCO Resources (XCO), Southwestern Energy (SWN), and Antero Resources (AR).

The United States Natural Gas ETF (UNG) follows US natural gas futures. It fell 2% to $7.24 on November 17, 2016. The United States Natural Gas ETF (UNG) fell 22.6% in the last month.

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Weather outlook 

The weather is expected to be mild for the next week across several parts of the US. However, the western and eastern parts of the US could experience cooler weather during the same period.

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 3 and Part 4 of this series.

Winter heating degree days

Winter heating degree days in the lower 48 states totaled 76 for the week ending November 10, 2016. They were 92 for the same period in 2015. The normal number of days is 118 for this period of the year.

Winter heating degree days are expected to be 26 less than the ten-year average in November 2016 at 489. It could pressure natural gas prices.   

Temperatures in the lower 48 states averaged 55 degrees for the week ending November 10, 2016—four degrees less than the previous week. Temperatures during the week were two degrees higher than they were in the same period in 2015. They’re also six degrees higher than the normal temperatures for this period of the year.

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Impact on stocks and ETFs  

The ups and downs in crude oil and natural gas prices impact natural gas producers’ earnings such as EXCO Resources (XCO), Southwestern Energy (SWN), and Antero Resources (AR).

Uncertainty in crude oil and natural gas also impacts funds such as the iShares Global Energy (IXC), the Fidelity MSCI Energy ETF (FENY), 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).

Series focus  

In this series, we’ll cover the highs and lows for natural gas prices in 2016. 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 on November 18, 2016.

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