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The Downward Trading Trend of Natural Gas in October

Gordon Kristopher

Natural Gas in Mid-October 2015: Weather versus Inventory

(Continued from Prior Part)

Downward trend

Natural gas futures contracts for November delivery are showing the emergence of down-trending price channel. On October 13, 2015, prices fell after testing the key resistance of $2.55 per MMBtu (British thermal units in millions)—a fall due primarily to weather estimates and the inventory consensus.

Key pivots

The consensus that the natural gas inventory is increasing could continue to put pressure on natural gas prices, which could see support at as low as $2.30 per MMBtu, the mark they hit in June 2012. In contrast, chilly winter weather could support natural gas prices in the short-term. The next resistance for natural gas prices could be seen at $3 per MMBtu, the level at which prices tested in April 2015.

The US natural gas price will average $2.81 per MMBtu in 2015 and $3.11 per MMBtu in 2016, according to the US EIA (Energy Information Administration) estimates. Bank of America Merrill Lynch (BAML) estimates that natural gas prices could average around $2.85 per MMBtu in 2015. Citigroup estimates that natural gas prices could average around $2.70 per MMBtu in 2015 and $3 per MMBtu in 2016.

The volatility in the natural gas market affects US energy producers such as Range Resources Corporation (RRC), Ultra Petroleum Corporation (UPL), Antero Resources Corporation (AR), and Comstock Resources (CRK). These companies account for 5.4% of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) and have natural gas production mixes making up than 49% of their production portfolios. They also impact ETFs like the PowerShares DB Energy ETF (DBE) and the iShares US Oil Equipment & Services ETF (IEZ).

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