EIA Shows Bearish Natural Gas Inventory, Prices Fall
(Continued from Prior Part)
US natural gas prices
US natural gas prices fell ~0.54% between Friday, September 18, and Thursday, September 24. Prices closed at $2.591 per MMBtu (British thermal units in millions) on September 24. On September 18, prices closed at $2.605 per MMBtu.
Lower natural gas prices are negative for natural gas producers such as Chesapeake Energy (CHK), Southwestern Energy (SWN), QEP Resources (QEP), and Cabot Oil & Gas (COG). These companies make less money when natural gas prices fall. All these companies combined make up ~2% of the Vanguard Energy ETF (VDE).
With lower prices, natural gas producers may be inclined to produce less. This would in turn be negative for the energy transportation MLP sector, which includes companies such as MarkWest Energy Partners (MWE). Lower production would mean lower volumes to transport, which could hurt MLP revenues.
US natural gas weekly price recap
US natural gas prices on Monday, September 21, fell ~1.23% from the previous Friday’s closing price of $2.605 per MMBtu. Prices settled at $2.573 per MMBtu, the lowest in five months. Prices fell as weather forecasters expected moderate temperatures across most of the United States. The weakness on Monday was also as a result of the effects of “El Niño”—a climatic change that results in warmer weather due to warm water from the Western Pacific flowing to the Eastern Pacific.
However, prices rose on Tuesday on positive speculation that lower prices will boost demand from power plants. We discuss power generation trends in a later part of this series. Prices rose by 0.15% to settle at $2.577 per MMBtu.
On Wednesday, cooler weather forecasts pushed prices lower. They fell by 0.3% to settle at $2.569 per MMBtu.
On Thursday, prices rose despite a bearish EIA (U.S. Energy Information Administration) report. The report showed that storage inventory numbers increased more than market expectations. However, prices rose 0.85% to settle at $2.591. This was likely because of positive speculation that lower prices will cause a considerable drop in natural gas production and also because of increased demand from power plants.
Prices were holding near the same levels in early Friday trade.
In the next part of this series, we’ll see how various securities that are exposed to natural gas performed last week.
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