Natural Gas Prices Fall as Supplies Outpace 5-Year Average
(Continued from Prior Part)
Natural gas prices
Natural gas prices fell between Friday, July 17, and Thursday, July 23, by ~2%. Prices closed at $2.816 per MMBtu (million British thermal units) on Thursday, July 23. On Friday, July 17, prices closed at $2.87 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 of these companies combined make up ~2% of the iShares U.S. Energy ETF (IYE).
With lower prices, natural gas producers may be dissuaded from producing more. This would, in turn, be negative for the energy MLP sector, which includes companies such as MarkWest Energy Partners (MWE). Lower production means lower volumes for these MLPs to transport, which means lower revenues.
Price movements
Natural gas prices on Monday, July 20, fell 1.6% from the previous Friday’s price of $2.87 per MMBtu. They settled at $2.823 per MMBtu. Prices fell as markets remained concerned about surplus supplies.
However, prices advanced on Tuesday after MDA Weather Services forecasted above-normal temperatures in the Mid-Atlantic and Texas from July 26 through August 4. Warmer weather boosts power demand for cooling, which is bullish for natural gas prices. Natural gas is a major fuel used for power generation. Prices increased 2% to settle at $2.882 per MMBtu on Tuesday.
Prices rose again on Wednesday on hopes that higher demand could outweigh supply concerns. They rose 0.5% and settled at $2.897 per MMBtu.
On Thursday, prices fell again. The EIA (U.S. Energy Information Administration) storage report showed that natural gas storage levels remain higher than the five-year average. Inventories have been outpacing the five-year average since the week ended May 29, indicating robust supplies. This is bearish for prices.
Prices fell ~3%, canceling the previous gains that they’d seen earlier in the week. Prices closed at $2.816 per MMBtu on Thursday.
Natural gas prices remained subdued the next day, trading near ~$2.79 per MMBtu early on Friday.
The following part of this series analyzes how various natural gas–exposed securities performed last week.
Continue to Next Part
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