In the past four trading sessions, natural gas (UNG) (FCG) (BOIL) (GASL) (GASX) (UGAZ) (DGAZ) October futures have fallen by 7.3%. They closed at ~$2.7 per MMBtu (million British thermal units) on September 7, 2016, which is ~1.5% lower than the previous session.
The loss coincides with concerns that the current supply glut will persist. Previously, the market had hoped that natural gas demand could match supply by the end of summer. Weather forecasts also indicate moderate weather ahead.
On July 1, active natural gas futures hit a 2016 high of $2.99—the highest level since May 2015, on a closing price basis. Currently, natural gas is ~20.8% below its 2016 high.
Why natural gas prices fell in early 2016
Last winter, natural gas usage for heating was weak due to mild weather. As a result, prices were weak. At the end of March 2016, US natural gas inventories were at 2.5 trillion cubic feet—67% higher than levels in 2015 and 53% higher than their five-year average. Natural gas futures hit a 2016 and 17-year low of $1.64 on March 3.
The EIA (US Energy Information Administration) projects that natural gas inventories will be 4,042 Bcf at the end of October 2016, which would be the highest end-of-October level on record.
Key moving averages
On September 7, natural gas futures were trading ~0.4% above their 100-day moving average but 2.4% below their 20-day moving average. This indicates short-term bearishness in natural gas prices. The above graph shows the price performance of natural gas futures relative to key moving averages.
Natural gas sentiment also impacts ETFs such as the ProShares Ultra Oil & Gas ETF (DIG), the PowerShares DWA Energy Momentum Portfolio (PXI), the Vanguard Energy ETF (VDE), the iShares US Energy ETF (IYE), and the Fidelity MSCI Energy Index ETF (FENY).
Photos credit Market Realist
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