Natural Gas Market: Weather and Inventory Cues

(Continued from Prior Part)

Price channel

September natural gas futures contracts trading in NYMEX were trading close to the nearest support of $2.60 per MMBtu (British thermal units in millions) on August 24, 2015. Gas prices have been fluctuating between 2.60 per MMBtu and $2.90 per MMBtu since early June 2015. The weather and inventory forecast have been driving natural gas prices.

Key pivots

The bearish traders could see support for natural gas prices at $2.60 per MMBtu. Prices tested this level in June 2015. The massive supply and rising inventory could drag natural gas prices lower. In contrast, demand from electric power plants and warm weather could put upward pressure on natural gas prices. The resistance for natural gas prices is seen at $3 per MMBtu. Prices hit this mark in April 2015.

Bank of America Merrill Lynch (BAML) estimates that natural gas prices could average around $2.85 per MMBtu in 2015. The trading channel suggests that natural gas prices could fluctuate between $2.60 and $3 per MMBtu in the near term.

ETFs like the VelocityShares 3X Long Natural Gas ETN (UGAZ) and the United States Natural Gas Fund LP (UNG) benefit from rising natural gas prices.

They also positively impact US upstream players like Gulfport Energy (GPOR), Chesapeake Energy (CHK), and EXCO Resources (XCO). They account for 3.13% of the SPDR Oil and Gas ETF (XOP). These stocks’ natural gas production mix is greater than 59% of their total production.

Browse this series on Market Realist:

• Part 1 - Natural Gas Prices Fall Due to the Mild Weather Forecast

• Part 2 - Natural Gas Rig Count and Inventories Diverge