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Key analysis: Latest natural gas inventory report

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Inventories fall less than expected

On December 4, the U.S. Energy Information Administration (or EIA) reported a 22 billion cubic feet (or Bcf) natural gas inventory draw for the week ending November 28. Inventories decreased to 3,410 Bcf.

The draw in inventories this week is 119 Bcf lower than the 141 Bcf withdrawal last year. It’s also 28 Bcf lower than the five-year average net withdrawal of 50 Bcf for this time of year.

As the table below notes, inventories were 6.2% lower compared to last year’s levels and 9.8 % lower than five-year average levels.

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End of injection season

The US added 2,789 Bcf of natural gas to storage during the 2014 injection season. This is significantly higher than the 2,131 Bcf injection last year. It’s also higher than the 2,034 Bcf injection that was the average for the corresponding weeks between 2009 and 2013.

Before the start of the injection season, inventories totaled 822 Bcf, the lowest since April 2003. For context, April 2013 storage levels were 1,675 Bcf, more than double the 2014 figure.

The injection season typically lasts from April 1 until October 31. However, natural gas injection sometimes continues into November as well.

Last week’s draw is significantly lower than last year’s withdrawal and even the five-year average. It appears the EIA’s forecasts that the US will face a milder winter this year will hold true. But we’ll have to wait and see how the weather plays out.

Key stocks and ETFs

Changes in prices affect natural gas producers and natural gas inventory movements affect prices. Last week’s data are bullish for American gas producers such as Range Resources Corp. (RRC), Devon Energy Corporation (DVN), EQT Corp. (EQT), and Chesapeake Energy Corporation (CHK). Most of these companies are components of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP).

These companies’ profits are also governed by weather forecasts.

The following part of this series considers what impact this inventory report had on natural gas prices.

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