Natural Gas Outperforms UNG YTD (Part 2 of 3)
Demand from power generators
The demand for natural gas from power generators is expected to increase in 2015. The demand is estimated to increase to 4 Bcf/d (billion cubic feet per day) to 27.2 Bcf/d, according to an energy analyst with Bentek. It’s also expected that lower natural gas prices will see power plants using gas instead of coal. This will account for an increase of 3 Bcf/d to 3.5 Bcf/d for the year.
Gas inventories are expected to average around record 4.1 trillion cubic feet per day by the end of October 2015. Weekly natural gas in storage was reported by the EIA (U.S. Energy Information Administration) on April 9, 2015. The data showed that gas in storage rose to 1,476 Bcf (billion cubic feet) from 1,461 Bcf for the week ending April 3. Market consensus, according to KLR Group Equity Research analysts, also suggests that the natural gas supply will increase to 4.5 Bcf/d—compared to previous estimates of 3.8 Bcf/d in 2015.
Sluggish demand and oversupply factors will continue to weigh on natural gas prices. Prices held above the key support level of $2.50 per MMBtu for the last two trading sessions. Prices hit this level in June 2012 and on April 10, 2015.
Natural gas prices are trading below their 20 and 50-day moving average of $2.69 per MMBtu and $2.75 per MMBtu levels. The RSI (relative strength index) is in overbought territory. This suggests that gas prices could rise higher.
Gas prices are reflected in ETFs like the Spider Oil and Gas (XOP) and the Energy Select Sector SPDR ETF (XLE). These ETFs dropped marginally in yesterday’s trade. Oil and gas stocks like Rice Energy (RICE), Cabot Oil (COG), and Ultra Petroleum (UPL) have a natural gas production mix greater than 90% of their total production. They account for 3.06% of XOP. These companies’ absolute returns are impacted by natural gas price movement.
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