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Who Will Win: Weather Estimates or Rising Inventory Data?

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Short-term demand

Natural gas consumption from residential and commercial increased yesterday, according to data from LCI Energy—a natural gas analytics firm. Gas flows to electric power plants also increased to 21.2 Bcf (billion cubic feet)—13% more than last year. In contrast, the data added that daily storage levels increased day-over-day in the lower 48 states in the US. The storage levels are 22% more than the levels last year.

The central and eastern US will drive the heating demand of natural gas in the short term. The rise in gas demand will support the rise in natural gas prices.

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Consensus of increasing inventories

The weekly natural gas in storage report will be released by the EIA (U.S. Energy Information Administration) today at 10:30 AM EST. The industry estimates an increase of 87 Bcf (billion cubic feet). Last week, weekly inventories increased by 63 Bcf to 1,539 Bcf—the highest since November 2014. These inventory levels are 80% more than the levels last year.

The marginal increase in demand, due to cold weather estimates, could have a minor impact on gas prices—considering the fundamental picture of the oversupply market. However, the market’s reaction to the consensus of rising inventories isn’t reflected in the gas prices.

The Spider Oil and Gas ETF (XOP) and the Energy Select Sector SPDR ETF (XLE) consist of oil and gas stocks. Natural gas volatility impacts these ETFs’ margins. As gas prices increased yesterday, these ETFs gained marginally at the close of trade.

Gas producers like Gulfport Energy (GPOR), Antero Resources (AR), and Comstock Resources (CRK) have a natural gas production mix that’s greater than 60% of their production portfolio. They account for 3.34% of XOP.

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