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Why 2017 Could Be a Dull Year for Natural Gas Prices

PART:
1 2 3 4
Part 3
Why 2017 Could Be a Dull Year for Natural Gas Prices PART 3 OF 4

Inventories Spread: Can That Help Natural Gas Bulls?

Natural gas inventory data

Compared to the previous week, natural gas inventories have risen 72.0 Bcf (billion cubic feet) to 2,888 Bcf in the week ended June 30, 2017, according to EIA (U.S. Energy Information Administration) data released on July 7, 2017.

Inventories Spread: Can That Help Natural Gas Bulls?

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The rise in natural gas inventory was above the market expectation and more than last year’s addition during the same period. On July 7, 2017, natural gas futures fell 0.80%.

Inventories spread and natural gas prices

The spread between natural gas inventories and their five-year average (or inventories spread) impact natural gas prices inversely, as you can see in the above graph. For example, on December 28, 2016, natural gas active futures closed at a two-year high of $3.93 per MMBtu (million British thermal unit). In the week ended December 23, 2016, natural gas inventories fell 2.3% below their five-year average.

On the other hand, on January 27, 2017, the natural gas (UNG) (BOIL) (FCG) inventories spread reversed. Since then, active natural gas futures have fallen almost 12.0%.

Inventories spread in the trailing week

In the week ended June 30, 2017, natural gas (GASL) (GASX) inventories were 6.9% above their five-year average, which is the same as the week before. However, since the inventory spread peaked at 21.4% in March 2017, the spread has fallen by 14.5 percentage points. Since the release of the natural gas inventory data on July 7, 2017, natural gas August futures have risen 4.2%. Also, natural gas inventory was 9.0% below last year’s level, which is a supportive factor for natural gas prices.

How this week’s EIA data could impact natural gas traders

On July 13, 2017, the EIA will release natural gas inventory data for the week ended July 7, 2017. Market estimates suggest a rise of 59.0 Bcf, which is 5.0 Bcf less than the rise in the week ended July 8, 2016.

Suppose natural gas inventories rose 64.0 Bcf in the week ended July 7, 2017; the inventories spread could be 6.4%­. A possible fall in the inventories spread could please natural gas bulls.

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