Will Natural Gas Keep Rising?

The natural gas bounced back during last week. United States Natural Gas (UNG) also recovered. According to the latest U.S Energy Information Administration weekly update, last week’s natural gas injection was the first one in twenty weeks; it was still below the five year average injection. Will natural gas keep heating up? Let’s analyze the recent changes in the natural gas market.

During last week, the price of Henry Hub (short term delivery) bounced back by 4.1%. Moreover, United States Natural Gas also increased by 4.25%. As of last week, the Henry Hub price also $0.32 per million BTUs higher than its price during the same week last year. Last week’s rise in the price of natural gas may have contributed to the modest recovery of shares of some natural gas companies including Cheniere Energy (LNG): During last week, Cheniere Energy’s stock rose by 2.1%.

The chart below shows the changes in the prices of natural gas and UNG in past several months. Prices are normalized to November 29th, 2013. The chart presents that UNG has out-performed natural gas by roughly 17.6 percentage points because of the Backwardation in the futures market. This current situation implies the market expectations are that the price of natural gas may tumble down in the following months.

Storage

According to EIA’s latest weekly update, the underground natural gas storage modestly increased by 4 Bcf and reached 826 Bcf. In comparison, last year the storage declined by 14 Bcf; the five years average injection was 15 Bcf.

The rest of this analysis is at Seeking Alpha

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