On September 27, natural gas prices fell by 1% to USD 2.40 per MMBtu (million British thermal units). The United States LPG Fund fell by 2% on the same day. UNG tracks natural gas prices. To date, in the third quarter of 2019 Natural gas prices have increased by 4.2%. In the first two quarters of 2019, natural gas prices fell by 9.5% and 13.3%, respectively.
However, the increase in demand for natural gas this summer may have increased natural gas prices. Based on the Reuters weather forecast model, natural gas demand may change from -6.1 Bcf (billion cubic feet) to 0.5 Bcf compared to earlier forecasts for the next two weeks. Lower demand may limit increases in natural gas futures.
In the week ended September 27, the number of drilling platforms fell by five to 148. This was the lowest number of drilling platforms since March 3, 2017. The number of platforms also decreased by 90.8% compared to record levels in 2008. However, the number of gas platforms decreased natural gas may not help raise natural gas prices. The number of oil rigs has increased by almost 100% since 2008. It is behind a sharp increase in natural gas production. From January 2008 to June 2019, natural gas was sold production increased 66.7%. In this period, natural gas futures fell by 69.4%.
Inventory data and target price
On September 26, the EIA (US Energy Information Administration) reported an increase in natural gas stocks by 102 Bcf (billion cubic feet) for the week ended September 20. Reuters Poll estimated an increase of 89 Bcf. After EIA data, natural gas futures fell by 1%. The government showed higher growth than market expectations.
In addition, the negative inventory spread shrank by 90 basis points on a weekly basis. This decrease is a negative phenomenon for natural gas contracts. This will continue to curb any price increases next week. The inventory range is the difference between natural gas reserves and their five-year average.
Next week, active natural gas contracts are expected to close between $ 2.27 and $ 2.49 per MMBtu (one million British thermal units). The probability for this price range is 68%, assuming a normal price distribution. Given stock and demand data, most likely, natural gas contracts will stay near the lower end of our price forecast next week. This price range was calculated with the volatility implied by natural gas 41.1%.
Natural gas price specifications
On September 27, active natural gas contracts were settled by 3.8% and 1.2% above 50- and 100-day moving averages respectively. But on the same day, prices fell 4.3% below the 20-day moving average. Prices below this short-term moving average point to short-term weakness. In fact, after EIA inventory data, prices have fallen below this moving average for the first time since August 14. The 50-day moving average is 12.5% lower than the 200-day moving average. Moreover, if the difference between these moving averages increases, it may signal a further weakening of natural gas prices.
Energy reserves correlations
In September, among the natural weighted shares, Range Resources Corp. (RRC) and Gulfport Energy (GPOR) had the highest correlation, 88% and 77.4%, respectively, with natural gas. Natural gas-weighted inventories are energy reserves that operate with a production mix of at least 60% of natural gas. In addition, these energy reserves are selected from ETF SPDR S&P Oil & Gas Exploration & Production ETF (XOP).
So far, this month, the number of active natural gas contracts increased by 5.2%. In addition, RRC and GPOR increased by 12.9% and 20.8%, respectively. Among gas-weighted shares, Chesapeake Energy (CHK) showed a negative correlation of 25% with natural gas futures. Usually CHK has a greater affinity for oil prices than natural gas prices. CHK fell by 2.8%. In addition, US oil futures increased by only 1.5% this month.