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An Opportunity in Natural Gas?

PART:
1 2 3 4 5 6
Part 3
An Opportunity in Natural Gas? PART 3 OF 6

Are US Natural Gas Inventories Rebalancing?

EIA natural gas inventories  

On September 28, the US Energy Information Administration (or EIA) released its weekly US natural gas inventory report. It reported that US natural gas inventories rose by 58 Bcf (billion cubic feet) to 3,466 Bcf between September 15 and 22. However, inventories are down 3.7% or 134 Bcf from the same period in 2016.

The market expected that US natural gas inventories would have risen by 66 Bcf between September 15 and 22. US natural gas (UNG)(DGAZ)(BOIL) prices fell on September 28 due to the rise in natural gas inventories and mild weather.

Are US Natural Gas Inventories Rebalancing?

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US natural gas futures 

US natural gas (UGAZ)(GASL) prices are near a one-week low. Lower natural gas prices have a negative impact on natural gas producers’ (XOP)(VDE) earnings, including Newfield Exploration (NFX), Southwestern Energy (SWN), Gulfport Energy (GPOR), and Cabot Oil & Gas (COG).

US natural gas inventories by region  

Movements in natural gas inventories for the reported storage regions between September 15 and 22 are as follows:

  • the East rose by 15 Bcf (billion cubic feet) to 848 Bcf
  • the Midwest rose by 26 Bcf to 964 Bcf
  • the Mountains rose by five Bcf to 217 Bcf
  • the Pacific region rose by seven Bcf to 307 Bcf
  • the South Central area rose by five Bcf to 1,130 Bcf

Impact 

US natural gas inventories are 1.2% above their five-year average for the week ending September 22. However, they were 21% above their five-year average in March 2017, which suggests that US natural gas inventories are rebalancing toward historical average levels.

If this momentum continues, US natural gas inventories could fall below their five-year average in October 2017. A fall below the five-year average could have a bullish impact on US natural gas (UNG) prices.

In the next part of this series, we’ll discuss why the US natural gas rig count hit a nine-week high.

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