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Could Natural Gas Drop as the US Exits the Paris Climate Accord?

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Nov. 20 2020, Updated 12:36 p.m. ET

Natural gas just above the $3 mark

On June 7, 2017, natural gas (UNG) (GASL) July futures fell 0.7% and settled at $3.02 per MMBtu (million British thermal units). Natural gas active futures fell 1.7% between May 31–June 7, 2017.

On June 2, 2017, natural gas July futures fell below the psychological level of $3 before closing above $3 on June 6. In the trailing week, natural gas fell due to mild weather.

Between May 31–June 7, 2017, the Energy Select Sector SPDR ETF (XLE) fell 0.6%. US crude oil (USO) (USL) July futures fell 5.4% during this timeframe.

Below are the performances of equity indexes included in the energy sector:

  • The S&P 500 Index ETF (SPY) (IVV) (VNN) rose 0.9%.
  • The Dow Jones Industrial Average (DJI) rose 0.8%.
  • The FTSE 100 Index (EWU) fell 0.5%.
  • The CAC 40 Index (EWQ) fell 0.2%.
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Could natural gas move lower?

In its latest STEO (Short-Term Energy Forecast) released on June 6, 2017, the U.S. Energy Information Administration (or EIA) projected higher natural gas (GASX) (BOIL) supplies in 2017 and 2018 compared to 2016.

In 2017, dry natural gas production could rise to 73.3 Bcfpd (billion cubic feet per day). In 2018, production could average ~76.6 Bcfpd. In 2016, dry natural gas production averaged 72.3 Bcfpd.

On a year-over-year basis, natural gas consumption by electric utilities could fall ~2.3 Bcfpd in 2017. Overall natural gas consumption could fall ~1.7 Bcfpd in 2017 compared to 2016, mostly due to reduced natural gas consumption by electric utilities.

Since President Donald Trump implemented the country’s exit from the Paris climate accord, the use of coal for power generation could increase while increasing natural gas supplies. This shift could be a bearish catalyst for natural gas prices.

Natural gas moving averages

On June 7, 2017, natural gas July futures were 6.9% below their 20-day moving average. On the same day, natural gas futures were 7.5% below their 100-day moving average.

On June 7, 2017, the 50-day moving average for natural gas July futures was 2.2% above its 200-day moving average, which could bring some relief to natural gas bulls.

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