Will Natural Gas Continue to Heat Up?

The natural gas market has heated up in the past couple of weeks. United States Natural Gas (UNG) has also rallied in the past couple of weeks. According to the recent U.S Energy Information Administration report, last week’s withdrawal from natural gas storage was lower than the five year average withdrawal. Will natural gas price continue to rise? Let’s analyze the recent developments in the natural gas market.

During last month (up-to-date), the price of Henry Hub (short term delivery) sharply increased by 10.42%. Furthermore, United States Natural Gas also rallied by 7.8%. As of last week, the Henry Hub price was only $0.02 per million BTUs higher than the price during the same week in 2012. The recent rise of natural gas may have contributed to the recovery of shares of gas and oil producers such as Chesapeake Energy (CHK): During last week, Chesapeake‘s stock rose by 1.8%. If natural gas continues rise, this could augment the expected revenues of Chesapeake and thus slightly positively affect the company’s value.

The chart below shows the changes to the price of natural gas and UNG in the past twelve months. Prices are normalized to November 30th, 2012. As you can see herein, UNG has under-performed the price of natural gas by nearly 17 percentage points due to Contango that led to roll-decay.

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