Natural gas for February delivery rose $ 0.182 or nearly 7% to $ 2.914 per million BTUs Thursday, and was up 13% over the past week.
Part of the reason for the spike was bitterly cold winter weather that spread from the northern part of the U.S. to the East Coast. According to forecasts, temperatures are expected to remain very cold well into January.
The increasing reach of polar-like weather has upended the outlook for heating demand for natural gas, and provided a sentimental boost to ‘natty’ gas futures.
Adding to the bullishness was the latest inventory report from the U.S. Energy Information Administration (EIA) that showed a net withdrawal of 112 Billion cubic feet (Bcf) from natural gas inventories during the week ended December 22. This followed on the heels of a withdrawal of 111 Bcf in the previous week.
The flare in natural gas prices also rubbed off on natural gas stocks on Thursday, pushing up the NYSE Arca Natural Gas Index by 1.4%.
Over the longer term, abetting bullishness has been a steady change in natural gas demand-supply fundamentals, with demand this week estimated at 800 Bcf, up 35% year-on-year. Since February 2017, weekly demand has been tracking above the nine-year average, as shown in the chart below.
Source: Bluegold Research
Demand includes exports, which have surged 30% year-on-year. Note that piped gas exported to Mexico has touched a high of 4.5 Bcf per day recently. It is estimated that at least five LNG tankers (total natural gas carrying capacity of 17 bcf) were despatched out of the Sabine Pass Terminal over the past seven days. U.S. exports of gas are said to have reached a tipping point, and once the Maryland Cove Point terminal (owned by Dominion Energy) becomes operational, the U.S. could become the largest global source of LNG after Qatar and Australia. Exports to China have surged as the country cut down on the consumption of coal in a bid to curb smog.
However, these factors may be swamped by production rising to meet demand. See the massive rise in US gas production in the chart below (Source EIA).
Investors willing to take a leveraged bet on a short-term, weather-fuelled rally in natural gas that may last until January-end could consider the UGAZ ETN.
On Thursday, UGAZ closed at $70.69, up 20.18%.
VELOCITYSHARES 3X LNG NTRL GS ETN (NYSEARCA: UGAZ) Facts
The 3X leverage on this ETN can magnify your losses, so invest with the clear understanding that nattie prices can turn on a dime based on a cocktail of factors such as the weather, production and storage, and exports.
“Bilfinger – Natural gas pipeline USA”
By Bilfinger SE / Creative Commons Licence @ https://creativecommons.org/licenses/by-nd/2.0/
(No changes have been made to the image whatsoever)
Title: “Constructing natural gas line in winter, Finland”
By Jukka Isokoski (Gasum Oy) [CC BY-SA 3.0 (https://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons