Roughly half of U.S. homes use natural gas for space heating, and many more have electric heating powered by gas-burning utilities. When temperatures rise, gas demand drops.
That factor leads to stockpile gains every summer. But gas being pricier near $4 per million BTUs, investors may have reason to worry about a bigger increase in reserves.
SOME MARKET WATCHERS are concerned that the rally that took gas to its current $4 level will also lead to reduced demand from utilities. Over the past year, power plants took advantage of low prices and shifted to burning gas instead of more expensive coal, raising demand for the fuel and helping to shrink the U.S. supply glut. There are signs, however, that utilities are already dialing back their move to natural gas.
Teri Viswanath, senior natural-gas strategist at BNP Paribas, pointed to data from the U.S. Energy Department released last week that showed gas usage by electric utilities fell by 0.6 billion cubic feet (the measure for stockpiles) a day in January compared with January 2012.
Ms. Viswanath says that "unexpected weakness" could mean utilities aren't as keen on gas at these price levels, which could mean price declines are ahead. Meanwhile, Credit Suisse analysts are forecasting a drop in electric-power demand of two billion cubic feet per day this summer, which would likely help to push stockpiles higher.
Natural-gas bulls have fought back from decade lows to stage a startling rally over the past year, but it looks like now is the time to declare victory, and to take profits.
The weather is still cold. Next weeks inventory report will take it further below the 5 year average. This will cause DGAZ to drop to $9 or below. No doubt there will be a correction at some point and DGAZ will go up.
The question is when? It is to risky to buy and wait. Patience is needed. The weather will change, it always does.