Natural gas inventory draw slightly below estimates, bearish indicator for nat gas stocks/ETFs

2013.01.26 - Nat Gas InventoriesEnlarge GraphEvery 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 24, the EIA reported that natural gas inventories fell 172 bcf (billion cubic feet) for the week ended January 18 bringing current inventories to 2,996 bcf. A survey of experts had expected the drop in inventories to be 175 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. Also, the five year average draw (or negative change in inventories) for this equivalent week was 176 bcf. It is a negative for natural gas prices that this week’s draw on inventories is less than normal.

The reported draw on inventories was slightly bearish this past week. However for several weeks prior, natural gas inventory draws have been higher than experts’ estimates, a bullish indicator for gas prices. Still, inventories remain close to historic highs, as seen in the below graph.

Investors who are long on 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.