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Natural Gas Had a Bumpy Ride: What’s Ahead?

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Natural gas prices

In the last five trading sessions, natural gas (UNG) (BOIL) February futures lost 1.3%. They closed at ~$3.22 per MMBtu (million British thermal units) on January 11, 2017—about 1.7% lower than the previous session.

On January 9, 2017, natural gas active futures fell 5.5% due to forecasts for higher temperatures. On January 10, natural gas active futures gained 5.6% due to the forecast of winter weather for a longer period.

For the week ending December 30, 2016, natural gas inventories fell by 49 Bcf (billion cubic feet) compared to 237 Bcf in the week ending December 23, 2016. Inventory levels can impact natural gas prices.

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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—67.0% higher than the levels in 2015 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 ending December 30, 2016, natural gas inventories were 3,311 Bcf—0.6% lower than the five-year average and 9.9% lower than last year’s level. On January 12, 2017, the EIA (U.S. Energy Information Administration) will announce its inventory data for the week ending January 6, 2017.

Key moving averages

On January 11, 2017, natural gas futures were trading ~3.4% below their 100-day moving average and 7.1% below their 20-day moving average. Futures broke below their 100-day moving average and 20-day moving average on January 3, 2017. It indicates bearish sentiment for natural gas prices. It could mean more weakness for prices ahead.

Natural gas–related 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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