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Why investors need to watch natural gas inventory figures

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Natural gas inventories

The U.S. Energy Information Administration (or EIA) reports natural gas inventory figures every week.

Natural gas is an important fuel worldwide. Its uses span from power generation to plastics.

Natural gas consumption in the U.S. is very seasonal. It’s highest in the winter. Heating demands are at their highest during the winter months. Storage levels decline during these months.

The summer months are usually considered to be the “injection season.” Producers restock natural gas storage levels.

NG inventories

Demand and inventories

Markets monitor inventory levels every week. The markets determine if inventory levels will be high enough before the winter season starts. Stronger demand could cause significant shortfalls in injections before the winter starts. This could strain available supplies.

While natural gas demand is high during winters, hot temperatures during summer months can also cause demand to increase. Power stations use more fuel to power cooling devices like air conditioners.

Inventories and prices

There are supply constraints because of rising demand, especially in the winters. This can push natural gas prices up. This is what happened last winter when heating demands were at their highest.

Natural gas prices touched $6 million British thermal units (or MMBtu). However, they eased back to levels closer to $4 earlier this year.

In a later part in this series, we’ll discuss natural gas price movements last week.

Inventory expectations

If inventories rise more-than-expected, it implies either greater supply or weaker demand than expected. This is bearish for natural gas prices.

However, if the increase in natural gas inventories is less-than-expected, it implies either weaker supply or greater demand than expected. This is bullish for natural gas prices.

Last week, analysts expected a 109 billion cubic feet (or bcf) build in inventories. We’ll discuss actual inventory changes in the next part of the series.

Key stocks and exchange-traded funds (or ETFs)

Natural gas prices determine the margins for gas producers like Southwest Energy (SWN), EQT Corp. (EQT), Cabot Oil and Gas (COG), and EOG Resources (EOG). All of these companies are part of energy ETFs like the Energy Select Sector SPDR ETF (XLE).

 Visit the Market Realist Upstream Oil & Gas page to learn more about the industry.

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