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How Weather Forecasts Are Affecting US Natural Gas Futures

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Oct. 27 2017, Published 10:37 a.m. ET

Natural gas prices  

December natural gas (BOIL) (FCG) futures contracts fell 0.29% to $3.04 per MMBtu (or million British thermal units) in electronic exchange at 2:04 AM EST on October 27, 2017. In contrast, December E-Mini S&P 500 (SPY) futures contracts rose 0.05% to 2,563 in electronic exchange at 2:04 AM.

US natural gas futures are near a four-week low. They are also down 5% and 9% in the last three and 12 months. Changes in natural gas prices impact gas producers (IXC) (IYE) like Newfield Exploration (NFX), Cabot Oil & Gas (COG), and WPX Energy (WPX).

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Weather forecasts  

The US National Weather Service forecasts that temperatures will be warmer than average across most parts of the US this winter. The last two winters have been the warmest on record. The temperatures in December, January, and February are expected to be warmer than average temperatures, which could lead to less heating demand, which affects natural gas demand and in turn prices.

March 2018 natural gas (UNG) (UGAZ) futures closed at $3.13 per MMBtu on October 26, 2017. April 2018 natural gas futures closed at $2.95 per MMBtu on the same day. The spread between March 2018 and April 2018 natural gas futures was the lowest in more than five years on October 26, 2017, due to warm winter forecasts.

However, in early October 2017, the NOAA (or National Oceanic and Atmospheric Administration) predicted that temperatures this winter would be 13% colder than the last winter across the US. As a result, US natural gas (DGAZ) (GASL) futures had risen 3.5% to $2.98 per MMBtu on October 12, 2017. Changes in natural gas prices impact gas producers (VDE) (XOP) like Newfield Exploration and WPX Energy.

Changes in weather influence demand, inventories, and natural gas prices.

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