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Natural Gas Prices Slump due to Mild Weather Estimates

Gordon Kristopher

Natural Gas Futures Are More Profitable than UNG This Year

Natural gas prices slump

This series analyzes natural gas prices and fundamentals. For an in-depth look at natural gas and related companies, sectors, and drivers, please refer to our Energy and Power page.

NYMEX-traded natural gas futures for July delivery plunged by 2.25% on Tuesday and settled at $2.82 per MMBtu (British thermal units in millions) on May 26, 2015. Prices declined due to slowing demand—led by the moderate weather consensus. ETFs like the United States Natural Gas Fund LP ETF (UNG) mirrored the natural gas price movement in yesterday’s trade.

Commodity Weather Group reported that the climate across the Northeast, Mid-Atlantic, and Midwest will be warmer from May 27–31, 2015. Then, the weather is expected to be below normal temperatures from June 1–4, 2015. This mild weather consensus will curb the cooling demand for natural gas. As a result, it will put pressure on natural gas prices.

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Last week, the EIA (U.S. Energy Information Administration) published that the weekly natural gas inventories increased by 92 Bcf (billion cubic feet) for the week ending May 15. The EIA is expected to release the natural gas stockpile report on Thursday, May 28, 2015. Citigroup estimates that the stockpile might increase by 87 Bcf for the week ending May 22, 2015.

This is the sixth down day for natural gas prices in the last ten days. Prices rose by 0.64% more on the average up days than on the average down days, over the same period. Natural gas futures for July delivery were the worst performers on Tuesday’s trade. Prices declined by 2.11% YTD (year-to-date)—led by the mild weather forecast.

Oil and gas exploration companies like Rex Energy (REXX), Antero Resources (AR), and Parsley Energy (PE) are affected by lower natural gas prices. These companies have a natural gas production mix that’s more than 46% of their production portfolio. They account for 3.02% of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP).

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