Commodities & Metals
Continued Cold Weather to Drive U.S. Natural Gas Prices
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The United States Natural Gas ETF (NYSEMKT: UNG) rose 7.2% on Friday to close at $24.61, after posting a new 52-week high of $24.89 earlier in the day. The last time the fund reached that level was January 2012 on its way to a two-year low below $15. More than 26 million shares traded hands on Friday, well above the daily average volume of around 6 million.
The stockpile drawdown is the result of two factors: the continuing cold weather in heavily populated areas of the country and a decrease in production that is also partly due to the weather.
Low prices over the past two years or so also have slowed drilling for natural gas as producers face a situation where a backwardated market (current spot prices are higher than future prices) has lowered drillers hedging price to around $4 per thousand cubic feet. Hedging production at that price has not been useful for most producers. Until the price curve rise at the long end, this situation will continue to be a problem.
Friday’s jump in natural gas prices has already pulled back by about 2%, from $5.18 per thousand cubic feet to around $5.07 shortly before markets open Monday morning. The drop is also reflected in UNG’s share price, down more than 1% at around $24.38 shortly after the opening bell.
More colder weather is expected in the next couple of weeks and that will keep the price of natural gas volatile. The trend over the next couple of months, though, is likely to be a drop in natural gas prices below $5 per thousand cubic feet. And until the transition to the summer cooling season, when demand could rise again, prices are likely to remain under pressure.
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