Market Overview

Natural Gas Weak Despite Cold Forecast, Bigger-Than-Expected Inventory Drawdown

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Natural Gas Weak Despite Cold Forecast, Bigger-Than-Expected Inventory Drawdown
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Natural gas futures were lower despite bullish inventory data released on Thursday. Futures haven't budged much to the forecasts for colder weather either.

Higher Than Expected Inventory Drawdown

The Energy Information Administration said in its weekly natural gas storage report natural gas stocks fell by 209 billion cubic feet in the week ended December 16. This compares to average analyst expectations of a drawdown of about 198 billion cubic feet and the 147 billion cubic feet drawdown in the week ended December 9.

In the same period last year, inventories were down 32 billion cubic feet.

Cold Weather Expected Around New Year's Day

Meanwhile, new forecasts showed that colder temperatures will likely prevail around New Year's. In a morning report on Wednesday, Matt Rogers, president of Commodity Weather Group, said, "In the past 24 hours, both the American and European model guidance have shifted back toward more high-pressure ridging around Alaska that sets the stage for a shift back colder again by about the New Year's weekend with one cold push and then maybe more later in the 11–15 day."

Cooler weather increases demand for heating and in turn natural gas.

Are Futures Frozen? Little Reaction

Despite these bullish catalysts, futures have not reacted much. Natural gas futures for January delivery are currently trading at $3.528 per million BTU, down $0.014 and the February futures are down $0.015 at $3.552. A year ago, natural gas traded around $2.75.

Natural gas prices have seen a nice run up since the U.S. presidential election. On December 9, the futures hit a two-year high before pulling back.

At Time Of Writing

  • United States Natural Gas Fund, LP (NYSE: UNG) was slipping 1.67 percent to 8.85.
  • VelocityShares 3X Long Natural Gas ETN linked to the S&P GSCI Natural Gas Index Excess Return (NYSE: UGAZ) was declining 3.73 percent to 40.28.
  • VelocityShares 3X Inverse Natural Gas ETN linked to the S&P GSCI Natural Gas Index Excess (NYSE: DGAZ), which is an inverse ETN, was rallying 3.89 percent to 3.61.

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