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Weather: Key Catalyst for Natural Gas Prices in the Short Term

Gordon Kristopher

Weather Impacted the Natural Gas Market: It Fell 8% in October

(Continued from Prior Part)

EIA’s weather report

Warm weather was the real catalyst that killed the natural gas market in October 2015. Prices fell 8% in October 2015 due to warmer-than-normal winter weather estimates in 2015. As a result, natural gas prices fell for the fourth consecutive month. Rising natural gas production also supported the prices.

It’s the biggest losing streak since September 2011. In its October STEO (Short-Term Energy Outlook) report, the EIA (U.S. Energy Information Administration) reported that the weather would be warmer in the Rocky Mountains, the Midwest, and the South due to the El-Nino weather phenomenon. The EIA also estimates that the natural gas demand will be less in 2015 compared to last year. However, the weather estimates are changing frequently. They drive natural gas prices.

Latest weather report

US households use 49% of the natural gas for heating purposes. The warmer winter could curb the heating demand and impact natural gas prices in the short term. Commodity Weather Group estimates that there could be a colder winter across the Midwest and eastern parts of the US during the second week of November 2015. MDA Weather Services estimates mild winter weather in the central and eastern parts of the US over the next ten days.

The tug of war between a mild winter and cold winter could drive the natural gas market. Volatility in the gas market impacts oil and gas producers like EXCO Energy (XCO), Range Resources (RRC), Gulfport Energy (GPOR), and Memorial Resource Development (MRD). These companies’ natural gas production mixes are greater than 40% of their production portfolios. ETFs like the PowerShares DB Energy ETF (DBE) and the iShares Global Energy (IXC) are also impacted by the volatility in the energy market.

In the next part of the series, we’ll discuss the natural gas rig count for October.

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