Natural Gas Market: Lower Prices and a 16-Year Low Rig Count
Natural gas prices fell
NYMEX-traded natural gas futures contracts for January fell by 1.2% and settled at $1.99 per MMBtu (British thermal units in millions) on December 11, 2015. Prices fell due to the warm weather forecast. ETFs like the United States Natural Gas ETF (UNG) mirrored US natural gas prices in Friday’s trade. UNG fell by 1.4% and closed at $7.72 on December 11, 2015.
Weather update
The latest forecasting models suggest that the eastern parts of the US will be warmer than normal for the next few weeks. The lower 48 states in the US will also see mild winter weather. It’s important to note that 49% of the US households use natural gas for heating purposes. A mild winter will curb the heating demand. We could see less draw down of the inventories in the coming weeks. As a result, prices fell to three-year lows in Friday’s trade.
Last week, the EIA (U.S. Energy Information Administration) reported that the natural gas stockpile fell by 76 Bcf (billion cubic feet) for the week ending December 4, 2015. Market surveys projected that natural gas stocks might fall by 64 Bcf for the same period. The better-than-expected inventory was overshadowed by the oversupplied natural gas market.
Hedge funds
The US CFTC (Commodity Futures Trading Commission) released its Commitment for Traders report on December 11, 2015. The government data project that hedge funds increased their long positions for the week ending December 8, 2015—compared to the previous week. Record low prices are motivating the hedge funds to raise their long positions. The long-term lower natural gas prices impact natural gas producers like ConocoPhillips (COP), Chesapeake Energy (CHK), Rice Energy (RICE), and Devon Energy (DVN). They also impact energy ETFs like the Guggenheim S&P 500 Equal Weight Energy ETF (RYE) and the First Trust Energy AlphaDEX ETF (FXN).
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