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Why investors should closely watch natural gas inventory figures


Dec. 4 2020, Updated 10:53 a.m. ET

The weekly natural gas storage report affects natural gas prices

Every week, the U.S. Energy Information Administration (or EIA) reports figures on natural gas inventories, or the amount of natural gas stored in facilities across the U.S.

The markets monitor these figures because inventory data can indicate supply and demand trends. If the increase in natural gas inventories is more than expected, it implies either greater supply or weaker demand and is bearish for natural gas prices. If the increase in natural gas inventories is less than expected, it implies either weaker supply or greater demand and is bullish for natural gas prices.

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Natural gas prices directly affect earnings for gas-weighted producers such as Chesapeake Energy Corporation (CHK), EQT Corporation (EQT), Southwestern Energy Company (SWN), and Range Resources Corporation (RRC). Many of these producers are components of energy exchange-traded funds (or ETFs) such as the SPDR S&P Oil and Gas Exploration and Production ETF (XOP).

Background: The seasonality of natural gas inventories

Natural gas use is highest in the winter when the fuel is needed for heating homes. So, natural gas storage levels start decreasing in late October or early November when the winter heating season begins. U.S. natural gas storage levels generally decrease until late March or early April when the weather starts to warm up.

Natural gas storage levels generally increase through the fall. The summer also sees some increased use in natural gas because the fuel is used to generate electricity. The use of natural gas can increase during periods of hot temperatures because electricity is used for power cooling devices such as air conditioners. During the summer, natural gas inventories generally increase, although at a slower pace than during the spring and fall, the “shoulder seasons.”

Read the next part of this series to learn why last week’s natural gas inventories pushed prices away from an eight-month low.


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