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Natural Gas Stocks Rise As Injection Season Begins

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Inventories increase more than expected

On April 9, 2015, the U.S. Energy Information Administration, or EIA, released its natural gas stocks report for the week ended April 3. According to the report, stocks increased by 15 Bcf (billion cubic feet) to 1,476 Bcf. Analysts were expecting an increase of 10 Bcf.

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Injection season begins with stocks ~11% below five-year average

After the 15 Bcf build last week, natural gas inventories as of April 3 were ~79 % higher than last year’s levels but ~11% lower than the five-year average. Inventories briefly surpassed the five-year average a few weeks ago.

The net injection this week compares to a net withdrawal of 8 Bcf in the same week last year, and a 5-year average net withdrawal of 2 Bcf.

March inventories compared

March 2015 inventories were 75% higher than in the previous year but 12% lower than the previous five-year average. Inventories as of March 27, 2015, were 1,461 Bcf compared to 822 Bcf as of March 28, 2014.

In its April STEO (“Short Term Energy Outlook”), the EIA forecast that when injection season ends in 2015, typically at the end of October, inventories will total 3,781 Bcf. It forecasts a net injection of 2,310 Bcf.

Traditionally, heating season ends on March 31 and is followed by natural gas injection season. If inventories rise more than expected, there’s either greater supply or weaker demand than expected. This is bearish for natural gas prices, and it hurts the margins of gas producers such as Cabot Oil & Gas (COG), Range Resources (RRC), Devon Energy (DVN), and Chesapeake Energy (CHK). Combined, these companies make up 5% of the Energy Select Sector SPDR ETF (XLE).

On the other hand, if the increase in natural gas inventories is less than expected, there’s either weaker supply or greater demand than expected. This is bullish for natural gas prices.

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