Will Natural Gas Resume Its Upward Trend?

The price of natural gas has changed direction and fell during last week for the first time in December.  United States Natural Gas (UNG) has also followed and declined in the past week. Based on the recent U.S Energy Information Administration weekly update, last week’s extraction from storage was lower than the previous week’s extraction but remained much higher than the five year average withdrawal. Will natural gas resume its rally? Let’s analyze the recent developments in the natural gas market.

During December (up-to-date), the price of Henry Hub (short term delivery) jumped by 11.46%. Furthermore, United States Natural Gas also rallied by 10.6%. As of last week, the Henry Hub price was $0.91 per million BTUs higher than the price during the same week in 2012. This month’s rally of natural gas may have contributed to the recovery of shares of gas and oil producers such as Chesapeake Energy (CHK): During the previous week, Chesapeake‘s stock rose by 1.4%. If natural gas were to resume its upward trend, this could improve Chesapeake expected revenues and may slightly positively affect the company’s valuation.

The chart below shows the changes to the price of natural gas and UNG in the past twelve months. Prices are normalized to December 28th, 2012. As you can see, UNG has under-performed the price of natural gas by roughly 18 percentage points due to Contango that led to roll-decay.

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