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Natural Gas Prices: Analyzing Key Indicators

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On Thursday, natural gas prices rose by 0.3% and settled at $2.567 per MMBtu (million British thermal units). The United States Natural Gas Fund LP (UNG) rose 0.6%. On Thursday, the EIA (US Energy Information Administration) reported a fall of 94 Bcf (billion cubic feet) in natural gas inventories for the week ended November 15. The decline was 5 Bcf more than what Reuters’s poll had forecast. Its’ a bullish development for prices.

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Despite the bullish inventory report, natural gas prices rose modestly. On Thursday, Reuters’ two different weather forecast models suggested a change of 2.2 and minus 2.4 HDDs (heating degrees days) from their earlier forecasts. The weather forecast is for the next 15 days. A mixed weather forecast for the US lower-48 states might impact natural gas futures. The EIA already warned of moderate temperatures in the 2019-20 winter season. To learn more, read Why Natural Gas Prices Might Crash in Winter

Inventories’ five-year average

For the week ending on November 15, natural gas inventories were 1.6% below their five-year average. This difference or the “inventories spread” turned negative for the first time since October 4. A week ago, inventories were around 0.1% above their five-year average.

If the inventories spread expands further into the negative zone, its a positive development for natural gas futures. Reuters forecasted a 34 Bcf decline in the inventories for the last week. Next Wednesday, if the EIA reports the same decline in inventories, then the negative inventories spread could contract by 60 basis points.

Any contraction in the negative inventories spread might hurt natural gas prices. Read Why Natural Gas Inventories Could Dismay Natural Gas Bulls to know more about the inventories spread and natural gas prices’ inverse relationship.

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Rig count and natural gas production

Last week, the natural gas rig count was at 129, the lowest since December 2016. However, natural gas marketed production between November 14 and November 20 was at 108.4 Bcf per day. On a year-over-year basis, the marketed production grew by 11.2%.

The rising US shale oil output is an important factor behind higher natural gas supplies despite lower rig count. Natural gas is often an outcome during oil production in the shale regions. To learn more, read Rise in Natural Gas Production Might Not Be Avoided.

On November 18, the EIA released the DPR (Drilling Productivity Report). According to the report, natural gas production is expected at 85.2 Bcf per day next month from major seven shale regions like Anadarko, Bakken, and others. It could be a new record.

Natural gas price day moving averages

On Thursday, natural gas prices were 3.2%, 7.8% and 3.1% above their 50-, 100-, and 200- DMAs (day moving average), respectively. However, natural gas prices that are 2.8% below their 20-DMA suggest a short-term weakness. Also, the 50-DMA was just 0.1% below their 200-DMA. If the 50-DMA goes above the 200-DMA, we might see an upside in natural gas futures.

Natural gas’s implied volatility was 53.4% on Thursday. Based on this volatility, natural gas active futures are expected to close between $2.41 per MMBtu and $2.73 per MMBtu till next Thursday. Any bullish turnaround in weather might help natural gas prices to regain the $2.70 level. To know more about energy commodities, read Oil Prices Rise, Gold Stays the Course after EIA Report.

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