Natural Gas Rally Cut Down in Its Tracks but Inventory Could Shift Momentum (UNG)

August 16, 2012 10:38 AM EDT
After facing resistance above $3, natural gas prices and United States Natural Gas ETF (NYSE: UNG) have decline this week, with futures consolidating near $2.75. Traders say $3 is a key level with regard to the relationship between natural gas and coal, as reports say power companies are quick to swap back and forth between the two commodities.

Traders are also paying very close attention to inventory levels. Today inventory levels in the U.S. showed a gain of 20 billion cubic feet, well below the 5 year average and below analyst estimates of 25 bcf. Total natural gas inventories remain high and prices are very sensitive to inventory fluctuations, so today's report could cause sentiment to become more bullish.

Weather is a key factor affecting inventory levels, and traders say forecasts for moderating weather is part of the reason for the reversal in prices this week.

In the past 5 days, and United States Natural Gas ETF (NYSE: UNG) has decline 5 percent. Year-to-date, prices have fallen 27 percent.

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