On Thursday, front-month natural-gas futures settled at a three-month low for a second straight day as many analysts believe warmer weather may cause prices to fall even further. February-delivery natural-gas futures on the NYMEX settled down 1.10%, or $0.035/million BTUs lower, to settle at $3.198/million BTUs at the close of trading. Over the course of the last three sessions, the price of natural gas has dropped a total of $0.271/million BTUs, reaching its lowest level since September 26.
According to David Bird of WSJ.com:
"Analysts said the demand-sapping warmth means gas inventories will fall by less than normal, raising the possibility of record-high storage levels at the end of winter, which will keep pressure on prices. After an unusually warm winter last year, prices fell to a decade low price of below $2 per million British thermal units in April. The warmth means gas inventories will fall by less than normal, raising the possibility of record-high storage levels at the end of winter, which will keep pressure on prices. After an unusually warm winter last year, prices fell to a decade low price of below $2/million BTUs in April."
For U.S.-based investors of the United States Natural Gas ETF, L.P. (UNG), I think Thursday's negative session (coupled with the two previous sell-offs of 12/31/12 and 1/2/13) could be the start of a significant near-term bear market for the commodity.
Earlier today, Kyle Cooper, an analyst at IAF Advisors in Houston, noted that "if the warm weather forecast for the next 11-15 days continues for the second half of January, I think we'll begin to see a test of $3/million BTUs." If natural gas begins to test the $3/million BTU level, or even the $2.90/million BTU level, investors could see the revenue and subsequent profits of such companies as Chesapeake Energy (CHK) and Sand Ridge Energy (SD) fall as well.
According to the U.S. Energy Information Administration, "Projected consumption in 2013 declines slightly from 2012, as increases in residential and commercial consumption offset the declines in electric power use. The National Oceanic and Atmospheric Administration projects temperatures that are near normal this winter, but much colder than last year's mild winter. The weather forecasts imply large increases in use of natural gas for heating."
In my opinion and based on the EIA's projections, the price of natural gas will indeed test both the $3/million BTUs and the $2.90/million BTUs level.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.