Privatized weather controls natural gas prices - sorta.
The weather is the major driver of natural gas prices. You can get an idea of how prices will likely move in the short term by checking the forecast. These prices in turn drive short-term movements in the stock prices of natural gas producers like Encana Corp. (ECA), QEP Resources (QEP), Ultra Petroleum (UPL), and WPX Energy (WPX).
Natural gas price movement
After seeing an increase of almost 4% towards the end of last week, natural gas prices started the week at $3.71 MMBtu (million British thermal units) on Monday; much higher than the six-week low of $3.59 they saw last week.
Prices surged last week as weather forecasts by MDA Weather Services called for below-normal temperatures in parts of the Midwest from December 25 through December 29.
Prices fell on Tuesday, however, as updated weather forecasts called for milder temperatures over the Central US. Prices fell ~2.7% to close at $3.61 on Tuesday.
The decline was short-lived. Prices rose again on Wednesday as predictions from NatGasWeather.com called for cold after December 22. NatGasWeather.com also reported that a cold Canadian weather system would arrive in the Northern US next week, accompanied by below-normal temperatures, snow, and rain. Prices closed at $3.7 on Wednesday.
Mirroring a see-saw movement, as the graph above shows, prices fell back on Thursday on reports that temperatures will likely be above normal in the eastern US from December 24 through December 24, according to WSI Corp. Prices fell 1.6% to settle at $3.64.
At the end of the week, prices fell into a bear market, 4.9% to $3.46. Prices have fallen more than 20% since they peaked in June. When prices have fallen 20% from a recent peak, we’re seeing a “bear market.” This is a result of milder weather and surging production.