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Finally, winter has heated up natural gas prices, putting an end to the struggles of the commodity. Among the issues hurting the broader energy space, ample supplies and falling demand on global growth worries were primary. As a result, natural gas spot prices averaged $2.49 per million British thermal units (MMBtu) last year at the national benchmark Henry Hub, marking the lowest annual average price in about 20 years.
However, the tables turned for the space from December 2016 and has been giving a boost to the commodity in this freezing cold weather. As per EIA, nat gas inventory in underground storage fell by 151 billion cubic feet (Bcf) for the week ended January 6, 2017, easily surpassing the guidance (of 137 Bcf draw) as per the analysts surveyed by S&P Global Platts.
This brought the current storage level to 3.160 trillion cubic feet (Tcf), 10% down from last year and 0.1% down from the five-year average. The latest decline in inventory marked the eighth consecutive drawdown (read: Natural Gas ETFs Warm Up: Will the Rally Continue?).
Normally, Arctic Chills give life to this commodity every winter. The cold snap boosts electricity demand across the region putting natural gas in focus. In fact, in 2014, the Polar Vortex caused natural gas prices to jump over 50%. As almost 50% of Americans use natural gas for heating purposes, withdrawal in natural gas supplies push up the commodity’s prices (read: Cold Snap Warms Up Natural Gas ETFs).
An ETF tracking natural gas futures, namely United States Natural Gas Fund added about 4.3% in the last five days (as of January 13, 2017). Investors can also take a look at United States 12 Month Natural Gas (UNL - Free Report) which added 4.6% in the last five days and leveraged natural gas ETF ProShares Ultra Bloomberg Natural Gas (BOIL - Free Report) which tacked on over 5.8% gains (as of January 13, 2017) (see all energy ETFs here).
Will the Rally Continue?
In its latest winter fuels outlook, EIA expects households heating with natural gas to shell out 22% more this winter compared with last winter, thanks to equal rises in prices and consumption. Residential natural gas prices are projected to surge 11% from last winter to $10.37 per thousand cubic feet (Mcf) on average, while consumption is expected to jump 10%.
Last year, weather was relatively warmer thanks to the El Niño weather pattern. However, this year, the normal winter weather is back again. EIA also went on to do a sensitivity analysis (read: Play EIA's Forecast with These ETFs).
Under a 10% cooler scenario, EIA estimates that natural gas-related heating outlays will be 31% higher than last winter and 7% higher than the base case. Under a 10% warmer scenario, EIA projects spending to be 12% higher than last winter. Apart from winter, higher export to Mexico also caused a sharp natural gas inventory drawdown.
The Henry Hub natural gas spot price averaged $2.51/million British thermal units (MMBtu) in 2016 and may rise to an average of $3.55/MMBtu in 2017 and $3.73/MMBtu in 2018, as per EIA. Inclement weather and falling reserves should act as tailwinds in the near term.
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Natural Gas ETFs Basking in Winter Demand
Finally, winter has heated up natural gas prices, putting an end to the struggles of the commodity. Among the issues hurting the broader energy space, ample supplies and falling demand on global growth worries were primary. As a result, natural gas spot prices averaged $2.49 per million British thermal units (MMBtu) last year at the national benchmark Henry Hub, marking the lowest annual average price in about 20 years.
However, the tables turned for the space from December 2016 and has been giving a boost to the commodity in this freezing cold weather. As per EIA, nat gas inventory in underground storage fell by 151 billion cubic feet (Bcf) for the week ended January 6, 2017, easily surpassing the guidance (of 137 Bcf draw) as per the analysts surveyed by S&P Global Platts.
This brought the current storage level to 3.160 trillion cubic feet (Tcf), 10% down from last year and 0.1% down from the five-year average. The latest decline in inventory marked the eighth consecutive drawdown (read: Natural Gas ETFs Warm Up: Will the Rally Continue?).
Normally, Arctic Chills give life to this commodity every winter. The cold snap boosts electricity demand across the region putting natural gas in focus. In fact, in 2014, the Polar Vortex caused natural gas prices to jump over 50%. As almost 50% of Americans use natural gas for heating purposes, withdrawal in natural gas supplies push up the commodity’s prices (read: Cold Snap Warms Up Natural Gas ETFs).
An ETF tracking natural gas futures, namely United States Natural Gas Fund added about 4.3% in the last five days (as of January 13, 2017). Investors can also take a look at United States 12 Month Natural Gas (UNL - Free Report) which added 4.6% in the last five days and leveraged natural gas ETF ProShares Ultra Bloomberg Natural Gas (BOIL - Free Report) which tacked on over 5.8% gains (as of January 13, 2017) (see all energy ETFs here).
Will the Rally Continue?
In its latest winter fuels outlook, EIA expects households heating with natural gas to shell out 22% more this winter compared with last winter, thanks to equal rises in prices and consumption. Residential natural gas prices are projected to surge 11% from last winter to $10.37 per thousand cubic feet (Mcf) on average, while consumption is expected to jump 10%.
Last year, weather was relatively warmer thanks to the El Niño weather pattern. However, this year, the normal winter weather is back again. EIA also went on to do a sensitivity analysis (read: Play EIA's Forecast with These ETFs).
Under a 10% cooler scenario, EIA estimates that natural gas-related heating outlays will be 31% higher than last winter and 7% higher than the base case. Under a 10% warmer scenario, EIA projects spending to be 12% higher than last winter. Apart from winter, higher export to Mexico also caused a sharp natural gas inventory drawdown.
The Henry Hub natural gas spot price averaged $2.51/million British thermal units (MMBtu) in 2016 and may rise to an average of $3.55/MMBtu in 2017 and $3.73/MMBtu in 2018, as per EIA. Inclement weather and falling reserves should act as tailwinds in the near term.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>