uploads///Natural gas quant

Natural Gas: Winter Warmth Is Melting Its Prospects

By

Updated

Natural gas prices

In the past four trading sessions, natural gas (UNG) (BOIL) April futures fell 11.1%. They closed at ~$2.70 per MMBtu (million British thermal units) on February 22, 2017—about 0.4% higher than the previous session. In the trailing week, the Energy Select Sector SPDR ETF (XLE) fell 2.7% and the S&P 500 index (SPY) (QQQ) rose 0.6%.

Higher temperatures led the fall in natural gas prices in the trailing week. Weather is an important driver for natural gas prices. Apart from the weather, rising oil rigs could be a concern for natural gas prices. We’ll discuss the impact of oil rigs on natural gas production in Part 2 of this series.

Article continues below advertisement

Key moving averages

On February 22, 2017, natural gas futures were trading ~15.4% below their 100-day moving average and 13.4% below their 20-day moving average. Prices below the 100-day moving average and 20-day moving average indicate bearish sentiment for natural gas prices.

Notably, natural gas price sentiment impacts ETFs like 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).

Series focus

In this series, we’ll analyze how fundamental drivers like the rig count, natural gas inventories, and US dollar impact natural gas prices. We’ll also discuss what the natural gas futures forward curve might be indicating.

Next, we’ll see how oil rig counts impact natural gas prices.

Advertisement

More From Market Realist