Will Natural Gas Continue to Tumble?

The natural gas market has kicked off November with sharp drops to its price. United States Natural Gas (UNG) has also tumbled down in the past several days. Based on the recent U.S Energy Information Administration report, last week’s buildup in natural gas storage was lower than the five year average buildup. Will natural gas price continue to fall? Let’s examine the latest developments in the natural gas market.

During November (up-to-date), the price of Henry Hub (short term delivery) fell by 3.8%. Furthermore, United States Natural Gas also declined by 3.83%. As of the previous week, the Henry Hub price remained $0.28 per million BTUs higher than the price during the same week in 2012. The recent fall of natural gas may have contributed to the drop of shares of gas and oil producers such as Chevron (CVX): During the month, Chevron‘s stock declined by 1.6%. If natural gas continues decline, this could reduce the expected revenues of Chevron and thus slightly adversely affect the company’s value.

The chart below presents the progress of the price of natural gas and UNG during the past twelve months. Prices are normalized to November 1st, 2012. As you can see below, UNG has under-performed the price of natural gas by nearly 15 percentage points because of Contango that led to roll-decay.

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