Near-Term Bearish - Natural Gas Daily

| About: The United (UNG)

Summary

Weather forecasts for this week are slightly bearish, resulting in lower prices.

The gas-equivalent rig count declined 1.5 in the past week.

El Nino is almost completely gone now.

Natural gas (NYSEARCA:UNG) prices are currently a bit lower as of this morning's trading.

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As we've said many times before and in our recent article, natural gas prices will likely remain range-bound until the end of the shoulder season. Current storage levels are high, so any sign of bearish weather forecast will immediately eliminate any previous price increase.

Genscape, an industry consultant, said in a Monday morning report that, "Demand will remain weak on a national basis this week as Lower 48 population-weighted temperatures run well below seasonal norms through Friday." Genscape's meteorologic team's forecast expects Lower 48 cooling degree days will average -34.1 today versus the normal of +10.4. This is the result of cooler than expected weather leading to less cooling demand.

Near term, prices could get pressured and we remain firm that prices should be range bound.

Gas-Equivalent Rig Count

Baker Hughes (NYSE:BHI) reported rig counts on Friday. The net result was a decline in gas-equivalent rig count of 1.50.

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A measure made popular by EQT's CEO, the gas-equivalent rig count takes into account associated gas production from shale oil drilling. The concept is to take 0.25 of each oil rig, and take 1:1 on gas rigs. Gas rig counts have been in decline since 2008, but production has drastically grown. A big part of the growth was thanks to the discovery of the Marcellus, but nearly 15% of U.S. dry-gas production comes from associated gas (byproduct of oil drilling).

It is important to pay attention to this measure vs. just gas rigs.

Mexico Exports

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Natural gas exports to Mexico are on pace to hit an all-time high in the next month.

El Nino Almost Completely Gone

El Nino is almost completely gone, and many weather forecasters are more confident that La Nina is coming by the end of the summer. This will be a very important phenomenon for natural gas followers, and could set natural gas up for the "perfect storm."

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