Will Natural Gas Lose Steam and Fall?

The natural gas resumed its rally during the previous week mainly on Thursday following the release of the U.S Energy Information Administration weekly report. According to the report, last week’s natural gas injection was below the five year average. As a result, the price of natural gas and United States Natural Gas (UNG) rallied. Let’s review the recent developments in the natural gas market.

During last week, the price of Henry Hub (short term delivery) rose by 2.6%. Further, United States Natural Gas also increased by 2.2%. As of last week, the Henry Hub price also $0.38 per million BTUs above the price during the same week in 2013. Last week’s increase in the price of natural gas wasn’t enough to pull back up the shares of natural gas related companies such as Cheniere Energy (LNG): During last week, Cheniere Energy’s stock declined by 1.2%.

The chart below shows the shifts in the prices of natural gas and UNG during 2014 (up to date). Prices are normalized to December 31st, 2013. The chart shows that UNG has out-performed natural gas by roughly 15 percentage points due to the Backwardation in the futures market. This implies the market expects the price of natural gas may fall in the coming months.


Based on the EIA’s recent weekly report, the underground natural gas storage rose by 24 Bcf and reached 850 Bcf. In comparison, in 2013, the storage rose by 31 Bcf; the five years average injection was 42 Bcf. This means, last week’s injection was lower than normal. The current storage for all lower 48 states is still 50% lower than last year’s storage and 54.3% below the 5-years average.

The rest of this analysis is at Seeking Alpha

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