Since the beginning of last month, the price of natural gas has fallen by more than 15%. The weakness in the natural gas market is likely to continue in the coming weeks. These losses are mostly related to the ongoing drop in demand for natural gas and the steady rise in production. Let's explore these two sides of the equation:
The demand is cooling down in the power and residential/commercial sectors, which account for 70% of U.S. natural gas consumption. Utility companies such as American Electric Power (AEP) use natural gas to generate electricity (this commodity accounts for roughly 23% of American Electric Power's fuel mix). The elevated prices of natural gas in the past several months have led these companies to use other sources of energy, such as coal.
Moreover, the seasonal shift in the has also reduced the demand for natural gas for heating purposes in the residential/commercial sectors. So, the demand for natural gas in these sectors is likely to slowly fall in the near term.
The largest U.S. natural gas producers reacted to the news with sharp falls in their stock prices. Since the beginning of July, shares of shares of Anadarko Petroleum (APC) lost 1.3% to $107.94 and Chesapeake Energy (CHK) was down 9.23% to $26.53. The United States Natural Gas ETF (UNG) was off 15% to $21.81.