Will U.S. Natural Gas Prices Stay Range Bound

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February 25, 2019 12:59pm NYSE:UNG

natural gas

From Jude Clemente:

After some boring times in Summer and Fall, it has been a wild and crazy ride for natural gas prices this Winter 2018-2019. We have seen the most volatile U.S. gas market since 2009. Prices hit highs not seen since 2014 and lows not seen since 2016. Since November, prompt month gas prices have been in the very wide range of $2.55 to $4.85 per MMBtu. It was a cold and early start to winter in November, augmented by the fear of storage levels nearly 20% below the five-year average, that got the party started.

Yet, here we are in February, usually the third coldest month, and natural gas prices have simmered down quite a bit.

It has been a pretty ho-hum month for the U.S. natural gas market

Over the past three weeks, gas prices have varied by only 18 cents, compared to 78 cents the three weeks prior. Demand thus far in February has been averaging around 110 Bcf/d, down slightly from 114 Bcf/d in January but up from 100 Bcf/d in December. Overall, year-over-year, new production has been 9 Bcf/d, or above the 6 Bcf/d of new demand, making today’s market 3 Bcf/d oversupplied.

The prompt month March contract, the final winter sale, expires this week, and the market is already looking toward the low demand shoulder season. In Spring, we use less gas because heating needs subside and air conditioning needs have not fully ramped up yet. Natural gas is our main source of both heating and electricity, so demand goes up whether we get cold or hot temperatures.

The reality is that gas prices can only go so low, an increasingly true reality as our export complex continues to boom. In recent years, the mid-$2.50s level has proven a very hard floor for the market. Prices hit that mark back on February 7, only to correct upward to $2.70 within a few days. With a choppy move up, we seem to be setting up a $2.60 to $2.85 range for the time being. EIA has become noticeably more bearish for U.S. gas prices, putting its latest Henry Hub spot forecast in the low $2.80s for both 2019 and 2020. In 2018, Henry Hub averaged $3.15.

The United States Natural Gas Fund L.P. (UNG) was trading at $24.51 per share on Monday afternoon, up $0.49 (+2.04%). Year-to-date, UNG has gained 5.10%, versus a 5.50% rise in the benchmark S&P 500 index during the same period.

UNG currently has an ETF Daily News SMART Grade of C (Neutral), and is ranked #52 of 108 ETFs in the Commodity ETFs category.

This article is brought to you courtesy of Forbes.

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