Will Natural Gas Continue to Heat Up?

The price of natural gas resumed its upward trend and passed the $6 mark during last week. United States Natural Gas (UNG) also sharply rose last week. According to the recent U.S Energy Information Administration weekly update, last week’s natural gas withdrawal was above the five year average. Conversely, the sharp fall in demand didn’t curb down the extraction rate from the natural gas storage. Will the price of natural gas remain elevated this week? Let’s examine the recent developments in the natural gas market.

During February 2014, the price of Henry Hub (short term delivery) spiked by 24.1%. Moreover, United States Natural Gas also jumped by 14.5%. As of last week, the Henry Hub price was also $3.27 per million BTUs higher than its price during the same week in 2013. Last week’s spike in the price of natural gas may have contributed to the increase of shares of natural gas related companies such as Cheniere Energy (LNG): During last week, Cheniere Energy‘s stock increased by 3.3%. If natural gas price continue to rise, this could improve Cheniere Energy‘s expected sales and may slightly rise the company’s valuation.

The chart below presents the developments of the prices of natural gas and UNG in past several months. Prices are normalized to July 31st, 2013. As you can see, UNG has under-performed natural gas by roughly 26 percentage points due to Contango that led to roll-decay.

The rest of this analysis is at Seeking Alpha

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