Yahoo Finance Natural Gas Prices Hit a 1-Month Low
Natural Gas Prices Hit a 1-Month Low: Forecasts for 2016 and 2017
Natural gas prices
Natural gas futures contracts for July delivery fell by 1.4% and settled at $2.15 per MMBtu (British thermal units in millions) on Thursday, May 26, 2016. Prices fell due to the larger-than-expected rise in natural gas inventories. The United States Natural Gas Fund (UNG) fell by 1% to $6.48 on the same day. In contrast, the SPDR S&P 500 ETF (SPY) rose slightly by 0.04% and closed at $209.34 on May 26.
Weather outlook
The updated weather forecasts suggest that the US might experience mild weather for the next two weeks. This would curb the heating demand for natural gas. Approximately 50% of US households use natural gas for heating and cooling purposes. Consequently, lower demand would negatively affect natural gas prices. Mild spring weather could drive natural gas prices to seasonal lows. However, the summer weather could drive demand for gas-fired electricity generation to power air conditioning.
The weather outlook will drive the demand for natural gas, which affects inventory. We’ll learn more about the US natural gas inventory in the next part of this series. Traders closely track the changing outlook for spring heating demand and natural gas inventory to gauge the impact on natural gas prices.
Temperatures in the lower 48 states averaged 59 degrees Fahrenheit for the week ending May 19, 2016. This is 5% lower than the normal temperature and 7% lower than temperatures in the same period in 2015.
Natural gas price volatility
Natural gas prices hit a one-month low on May 26 and have fallen 15% YTD (year-to-date) due to mild weather, weak demand, high inventory, and oversupply. Natural gas prices rose 33% from the 17-year lows hit in March 2016 to late April 2016 due to cold weather estimates, short covering, and traders watching out for possible impacts from La Niña. The 52-week range for US natural gas prices is between $1.94 per MMBtu and $3.19 per MMBtu. US natural gas prices were trading around $3.06 per MMBtu one year ago.
The uncertainty in natural gas prices affects natural gas producers like Gulfport Energy (GPOR), Rex Energy (REXX), Ultra Petroleum (UPL), and Comstock Resources (CRK). They also influence ETFs and ETNs like the Direxion Daily Natural Gas Related Bull 3x Shares ETF (GASL) and the First Trust ISE-Revere Natural Gas ETF (FCG).
In this series, we’ll cover the US natural gas inventory, the rig count, production, consumption, and price forecasts.
Browse this series on Market Realist: