This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

4 Reasons Why Natural Gas Prices Will Tumble

NEW YORK (TheStreet) -- In January on TheStreet, I cautioned that, although natural gas prices were soaring, we were heading for "a price drop for natural gas when the demand cools down as the weather gets warmer."

And now it's happening.

United States Natural Gas ETF (UNG), the main exchange-traded fund for natural gas, is down more than 5% for the last week. Southwestern Energy (SWN - Get Report), a major player in the natural gas sector, is off nearly 4% for the last week due to a downgrade from Goldman Sachs. Also down 2.5% for the week with a large short float is natural gas firm Chesapeake Energy (CHK).  

There are four reasons why investors should expect securities in the natural gas sector to fall even more.

1. Supply and Demand

In my January article, I said that natural gas prices would rise in the short term due to cold weather in the U.S. That certainly did transpire. United States Natural Gas is up more than 19% for 2014. Much of that rise was from speculators following the "hot money."

From that high, it is inevitable that the price of natural gas will decline. Why? The four-year run-up was not based on the economic fundamentals of supply-and-demand that are needed to sustain an increase.

2. Substituting Coal and Alternative Energy for Natural Gas

The economic principle of substitution is also forcing natural gas prices lower.

Due to the four-year peak that natural gas prices hit as a result of speculation and the cold weather, usage of coal for electric utilities in the United States surged. According to data from the U.S. Energy Administration, if natural gas prices remain high, coal's percentage of power production will rise even more. And natural gas will drop in use at American power plants.

It is not just coal, either: natural gas also makes alternative energy power much more economically viable, too.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
SWN $11.92 0.00%
UNG $6.75 0.00%
AAPL $95.18 0.00%
FB $117.43 0.00%
GOOG $692.36 0.00%


Chart of I:DJI
DOW 17,750.91 -140.25 -0.78%
S&P 500 2,063.37 -18.06 -0.87%
NASDAQ 4,763.2240 -54.37 -1.13%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs