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Natural Gas Inventories Rise Almost in Line with Expectations

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Natural gas inventories

The US Energy Information Administration’s (or EIA) “Natural Gas Weekly Update” for the week ended June 5 showed that stocks increased by 111 billion cubic feet (or bcf) to 2,344 bcf. Analysts were expecting a slightly larger increase of 113 Bcf.

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What this means for investors

When inventories rise less than expected, they’re bullish for natural gas prices, which in turn are a positive for natural gas producers such as Chesapeake Energy (CHK), Devon Energy (DVN), Range Resources (RRC), and QEP Resources (QEP). These stocks are components of the iShares U.S. Energy ETF (IYE). They make up ~3% of this ETF.

Weekly data

The net injection last week compares to a net injection of 109 bcf in the same week last year and a five-year average net injection of 89 bcf.

Per the EIA, from the week ended April 3—which is the beginning of the injection season—through the week ended May 29, net injections totaled 883 bcf. This compares to a 758 bcf injection in the same ten weeks last year and a 651 bcf five-year average.

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Comparing current stocks with last year and the 5-year average

After the 111 bcf build last week, natural gas inventories as of June 5 were 47.3% higher than last year’s levels and ~2% higher than the five-year average. In the prior week, inventories had crossed the five-year average for the first time since February this year.

Markets will keep close watch to see if inventories will keep outpacing the five-year average—resonating with robust US natural gas production—in the weeks to come. If the outperformance lasts for many weeks, it would be bearish for natural gas prices.

EIA forecasts

EIA’s June STEO (“Short-Term Energy Outlook”), released on June 9, forecasts the end of injection season in October’s inventories to total 3,912 bcf. This is 115 bcf higher than the previous five-year average.

In the next part of this series, learn how natural gas prices performed last week.

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