The price of natural gas continues to move erratically as it passed the $5.2 mark by the end of last week. United States Natural Gas (UNG) also sharply increased last week. According to the latest U.S Energy Information Administration weekly report, last week’s natural gas withdrawal was well above the five year average. Moreover, the rise in demand only contributed to the sharp drop in natural gas storage. Will the price of natural gas change direction again this week? Let’s analyze the recent developments in the natural gas market.
During February 2014, the price of Henry Hub (short term delivery) rose by 5.5%. Moreover, United States Natural Gas also increased by 3.3%. As of last week, the Henry Hub price was also $3.09 per million BTUs higher than its price during the same week in 2013. Last week’s jump in the price of natural gas may have contributed to the rise of shares of gas and oil producers such as Chesapeake Energy (CHK): During last week, Chesapeake‘s stock increased by 2.2%. If natural gas price continue to rally, this could improve Chesapeake‘s expected sales and may slightly increase the company’s valuation.
The chart below shows the progress of the prices of natural gas and UNG in past six months. Prices are normalized to July 31st, 2013. As you can see, UNG has under-performed natural gas by roughly 14.13 percentage points due to Contango that led to roll-decay.
The rest of this analysis is at Seeking Alpha
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