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Will Weather Forecasts Impress Natural Gas Bulls?

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Natural gas prices and weather  

April natural gas (DGAZ) (BOIL) (UNG) futures fell 0.4% and were trading at $2.95 per MMBtu (million British thermal units) in electronic trading at 3:45 AM EST as of March 17, 2017. Prices fell from a one-month high.

Meanwhile, broader markets like the S&P 500 (SPY) (SPX-INDEX) and Dow Jones are trading near an all-time high. Bullish momentum in the US stock market could support natural gas demand and gas prices. For more on natural gas prices and drivers, read the previous part of this series.

Moves in natural gas prices impact natural gas producers’ earnings such as Cabot Oil & Gas (COG), Gulfport Energy (GPOR), Newfield Exploration (NFX), and Memorial Resources (MRD). For more on natural gas prices, read Part 1 of this series.

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Weather outlook  

Weather forecasting models suggest that cold weather will persist for a few days in the eastern parts of the US. The western and southern parts of the US will experience mild weather. Commodity Weather Group reported that the weather in March is expected to be normal compared to the historically mild winter in February 2017. Some forecasting models suggest that mild weather will persist for the rest of the winter. The winter usually lasts until March or April.

Changes in the weather impact the heating demand for natural gas (UGAZ) (GASL) and influence prices. The National Oceanographic and Atmospheric Administration estimates that this winter was extremely warm. As a result, the heating demand for natural gas fell ~20% from the average.

About 50% of US households use natural gas for heating. Cold winters drive the demand for natural gas either for furnaces or natural gas–fired electricity generation to power heaters. Changes in demand impact inventories.

In the next part, we’ll take a closer look at US natural gas inventories.

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