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Natural Gas Prices Down: Mild Weather Outlook, US Inventory Report

Gordon Kristopher

Natural Gas Market: Key Factors that Drive Natural Gas Prices

Natural gas prices

Natural gas futures contracts for June delivery fell by 3.2% and settled at $2.08 per MMBtu (British thermal units in millions) on Thursday, April 28, 2016. Prices fell due to a mild weather outlook and US inventory data. The United States Natural Gas ETF (UNG) fell by ~3.8% to $6.70 on April 28, 2016.

Weather outlook

The updated forecasting models suggest mild weather across several parts of the US over early May 2016. Mild weather curbs the heating demand, and the demand for natural gas drops. Half of all US homes use natural gas for heating. Consequently, this could negatively affect natural gas prices as weak demand adds to the inventory. We’ll learn more about the natural gas inventory in the next part of this series.

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The expectation of cold weather supported natural gas prices last week. Prices rallied almost 5% week-over-week for the week ended April 21, 2016. Temperatures in the Lower 48 were 10% above normal and 3% above the same period in 2015.

Natural gas price volatility

Natural gas prices had the highest settlement since February 11, at $2.14 per MMBtu on April 22, 2016. Prices rallied due to cold weather estimates, bullish crude oil prices, short-covering, and traders watching out for a possible La Nina effect. The rise in natural gas prices benefits natural gas producers like Range Resources (RRC), Ultra Petroleum (UPL), and Comstock Resources (CRK).

In contrast, natural gas prices tested a 17-year low on February 28, 2016, due to mild winter weather and oversupply. US natural gas prices are down 40% since May 2015. The roller coaster ride in natural gas prices affects funds like the Direxion Daily Natural Gas Related Bull 3X Shares ETF (GASL) and the VelocityShares 3x Inverse Natural Gas ETN (DGAZ).

What is covered in this series?

In this series, we’ll cover the US natural gas inventory, rig count, production, consumption, and price forecasts.

Continue to Next Part

Browse this series on Market Realist: