Will Natural Gas Bounce Back Again?

The natural gas market cooled down in the past week as the Henry Hub price tumble down by 25% to $4.61. United States Natural Gas (UNG) also plummeted last week. According to the latest U.S Energy Information Administration weekly report, last week’s natural gas extraction was below the five year average. Will the price of natural gas bounce back from its recent tumble? Let’s analyze the recent developments in the natural gas market.

During last month, the price of Henry Hub (short term delivery) fell by 6.8%. Conversely, United States Natural Gas rose by 5.5%. As of last week, the Henry Hub price was still $2.52 per million BTUs higher than its price during the same week in 2013. This means, despite the recent drop in the price of natural gas, it’s still high for the season. Last week’s plunge in the price of natural gas may have contributed to the decrease of shares of natural gas related companies such as Chesapeake Energy (CHK): During last week, Chesapeake Energy’s stock decreased by 2.5%. If natural gas price continue to fall, this could improve Chesapeake Energy’s expected sales and may slightly reduce the company’s valuation.

As you can see, UNG has out-performed natural gas by roughly 6 percentage points due to the shift from Contango to Backwardation in the futures market. This recent shift might suggest the market expectations are that the price of natural gas will fall in the coming weeks.

The rest of this analysis is at Seeking Alpha

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