Every week, the Energy Information Administration (EIA) releases data on how much natural gas is stored in various facilities across the US. These figures, also called “natural gas inventories”, can affect US natural gas prices and therefore the valuation of producers of natural gas.
On January 31, the EIA reported that natural gas inventories fell 194 bcf (billion cubic feet) for the week ended January 25, bringing current inventories to 2,802 bcf. A survey of experts had expected the drop in inventories to be 204 bcf. This is a slightly negative indicator for natural gas prices, because less natural gas was used than had been forecast, however the difference between the actual figure and estimated figure was small. Withdrawals since November 1 (the start of the winter heating season) totaled 1,127 bcf, or 2.6% below the five-year average of 1,157 bcf, which is also a negative for natural gas prices.
The reported draw on inventories was slightly bearish this past week and was slightly bearish last week as well. Additionally, inventories remain at close to historic highs for this point in the year, as seen in the above graph. Despite these bearish signs, natural gas rose on the day on speculation of colder weather to come.
This week’s natural gas inventory draw was slightly less than consensus estimates, and draws for the season have been below the five year average, both of which are fundamental negatives for natural gas. Investors who are long natural gas through an ETF such as the US Natural Gas Fund (UNG) or natural gas producers such as Chesapeake Energy (CHK), Southwestern Energy (SWN), and EXCO Resources (XCO) should monitor inventory draws and builds as they are significant data points in the national supply/demand picture of natural gas. The supply and demand dynamics of the commodity affect the price, and therefore the margins of companies which produce natural gas.