The United States Natural Gas Fund (NYSEArca: UNG) tumbled more than 14% last week while the iPath Bloomberg Natural Gas Subindex Total Return ETN (NYSEArca: GAZ) was also punished as commodities traders speculated that warming winter temperatures will weigh on natural gas prices in the near-term.
Around half of U.S. homes utilize natural gas for heat, driving up prices during the winter months when temperatures fall. Rising natural gas exports previously supported prices and draining the bloated stockpiles. Additionally, electricity companies are burning a record amount of gas, replacing coal demand.
“The lead month February futures have fallen over 70 cents over the past several trading sessions, as mid-term weather forecasts have shifted with an increased probability for above normal temperatures for most of the U.S. likely going out through mid-January. According to the Climate Prediction Center, only the Pacific Northwest and parts of the far Northern Great Plains are expected to see below normal temperatures through January 18,” according to Options Express.
Many observers, though, expect that higher demand for natural gas to heat homes and fire power plants, along with lower production, could steadily trim away at the large natural gas inventories even in a normal winter season.