Weather Forecast Gives Natural Gas A Jolt

On Wednesday, natural gas futures were higher thanks to warmer weathers forecasted over the next few weeks. Natural gas futures for August delivery were up by 0.1% to 2.737 million British Thermal Units — BTU. Natural gas has been having a good climb higher the past several months, and it is largely due to warmer weather. Back in March natural gas hit 2.0 million BTU, and recently in July hit a high of 3 million BTU.

Warmer Forecast Effect

Natural gas is a commodity that is used for energy purposes. It tends to perform according to how the weather forecast will play out. Considering that it is a commodity, its price trades based on how much of a demand it receives. During times of warmer weather, demand for natural gas increases. This is because people are using their air conditioners constantly to keep their house cool. As long as the demand for natural gas rises, so too should the price increase accordingly as well.

This should hold true, since the next two weeks is expecting to see very hot and humid weather. This is where option traders can take advantage of knowing about such a fact. With warmer weather looming over the next few weeks, traders can use call options. The price of natural gas should climb on the back of this weather forecast, making the trade less riskier than normal.

Stockpile Problem

Even though natural gas has traded higher the last few weeks, there has been something capping its gains. The item that has put a grinding halt to natural gas trading higher has been the stockpile issue. Natural gas also trades based upon how much supply is in the market. A greater amount of supply indicates that demand is weak. The problem in the supply number for natural gas can be observed by the amount of stockpiles reported on July 1. The stockpiles for that date werereported to be 23% higher than the current five–year average. Had the supply only increased by a small percentage amount it wouldn’t have been so bad, but an increase of 23% is way too much. As what normally happens when stockpiles increase, there is a downward pressure on the price of natural gas. The good news is that the increase in demand for natural gas due to warmer weather, should eat through the supply at a rapid pace. Just how much supply is reduced remains to be seen, but nonetheless it is bullish for those trading on the long side. The Energy Information Administration — EIA — is expected to release natural gas storage data for the week ending July 8 On Thursday. Analysts’ estimate that stockpiles will grow by 56 billion cubic feet to 3.235 billion cubic feet, which is 18% higher from one year ago. This excessive amount of supply does not bode well for the near-term price of natural gas.

Leak Problems

Natural gas is used for its ability to produce energy, but in a way where it is safe for the environment. Which is why over the years coal has been tossed to the wayside, with natural gas stepping up to the plate to take the lead. There are still many countries in the world that use coal to produce energy, but natural gas is making its way to the top. In the United States, natural gas has already taken the lead replacing coal as the main energy producer for power plants. The problem lies when natural gas leaves the pipes without first being burned. This causes methane gas to leak, and that is not a good thing for the environment at all. That’s why a few days ago in July, in Arkansas, workers had to quickly move forward to repair leakypipes. This means that natural gas still faces a risk when it comes to it being used as a commodity for energy. Still, it is a better method for producing energy than other toxic ways such as burning coal.