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Consensus of Rising Inventory Puts Pressure on Natural Gas Prices

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Demand drivers

The US NRC (Nuclear Regulatory Commission) reported that the power output from nuclear plants increased by 0.5% to 79,662 megawatts—the highest since 2010. The increase in power generation from nuclear power plants will impact natural gas and coal prices. Their demand will drop due to a decline in heating needs.

Gas deliveries to residential and commercial continue to fall day-over-day. In contrast, natural gas flows to power plants surged on Monday—compared to previous day. Warm weather estimates in the first week of May will also impact the demand for natural gas. The demand for natural gas could drop by 1.3 Bcf (billion cubic feet) per day due to warm weather estimates.

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Gas inventories

The EIA (U.S. Energy Information Administration) will release the next weekly natural gas report on April 30, 2015. Last week, the EIA reported that weekly gas in storage rose to 1,629 Bcf from 1,539 Bcf. The current inventories are the highest since November 2014. The weekly inventories are expected to increase by 82 Bcf for the week ending April 24. The current inventories are 83% more than the levels last year and 9% below the five-year average of 1,730 Bcf. Gas supplies continue to outpace demand in the near term and long term.

Lower gas prices impact the performance of energy ETFs like the Spider Oil and Gas ETF (XOP) and the Energy Select Sector SPDR ETF (XLE). These ETFs consists of oil and gas exploration, production, refining, and marketing companies. Stocks like Comstock Resources (CRK), Gulfport Energy (GPOR), and SM Energy (SM) are also impacted by natural gas volatility. These companies have a natural gas production mix that’s greater than 46% of their production portfolio. They account for 3.97% of XOP.

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