What’s Driving the Rise in Natural Gas Prices?
What's Driving the Rise in Natural Gas Prices?
Weather is changing investors’ sentiments
The forecast for below average temperatures in the next two weeks drove natural gas prices to a day high of $2.1 on April 19, 2016. On the same day, natural gas rallied 7.6% on a closing basis. A colder weather forecast indicates an increase in natural gas consumption for heating purposes. The fall in US shale producers’ rig counts is also supporting natural gas prices.
EIA estimates drove the natural gas rally
The EIA (U.S. Energy Information Administration) lowered its production estimates for natural gas. On April 11, the EIA said that the natural gas production in the seven key shale drilling regions should fall by 491 million cubic feet per day, or 1.1%, in May—compared to April. The fall in production corresponds to lower natural gas prices. Natural gas (UNG)(UGAZ) prices have been lower. They hit an 18-year low due to higher production and inventories.
At the end of March 2016, US (SPY) natural gas inventories were at 2.5 trillion cubic feet—67% above the levels in 2015 and 53% above their five-year average. The reasons behind the high inventory build up are surging production and higher-than-normal temperatures this winter. On April 12, 2016, natural gas prices rose by 4.8%. The above graph shows the impact that the EIA’s estimates and colder weather forecast had on natural gas prices.
Natural gas–weighted stocks
Natural gas–weighted stocks such as Cabot Oil & Gas (COG), EQT (EQT), and Rice Energy (RICE) take price cues from natural gas prices.
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