The price of natural gas jumped again and on Wednesday passed the $5.5 level - the highest level since January 2010. By the end of the week, however, natural gas tumbled down to below $5. United States Natural Gas (NYSEARCA:UNG) has also declined during last week. Despite the recent fall, natural gas is still traded at a high price compared to recent years mainly due to the cold weather. The U.S. Energy Information Administration reported that last week's natural gas depletion rate was much higher than the five-year average rate. The sharp rise in demand and decline in production have contributed to the rise in last week's withdrawal rate. Will natural gas market cool down? Let's analyze the recent developments in the natural gas market.
During January, the price of Henry Hub (short term delivery) spiked by 16.9%. The price of natural gas reached last week its highest level since late January 2010. Furthermore, United States Natural Gas also increased by 16.87%. As of last week, the Henry Hub price was also $1.82 per million BTUs higher than its price during the same week in 2013. Last week's elevated price of natural gas may have contributed to the rise of shares of gas and oil producers such as Chesapeake Energy (CHK): During the previous week, Chesapeake's stock slightly increased by 0.11%. If natural gas price falls, this could reduce Chesapeake's expected sales and may slightly cut down the company's valuation. The chart below shows the movement of the price of natural gas and UNG in last six months. Prices are normalized to July 31st, 2013. As you can see, UNG has underperformed natural gas by roughly 10.6 percentage points due to Contango that led to roll-decay.
Source: Google Finance and EIA
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Based on the EIA weekly update, the
