Natural Gas inventories
According to the EIA’s (U.S. Energy Information Administration) Natural Gas Weekly Update for the week ended May 29, natural gas stocks increased by 132 billion cubic feet (or bcf) to 2,233 bcf. Analysts were expecting a smaller increase of 122 bcf.
What that means for investors
When inventories rise more than expected, it’s bearish for natural gas prices. However, it’s a negative for natural gas producers such as Chesapeake Energy (CHK), Devon Energy (DVN), Range Resources (RRC), and QEP Resources (QEP). These companies are components of the iShares U.S. Energy ETF (IYE) and together make up ~3% of the fund.
The net injection last week compares to a net injection of 118 bcf in the same week last year and a five-year average net injection of 92 bcf.
According to the EIA, from the week ending April 3, which is the beginning of the injection season, through the week ending May 29, net injections totaled 772 bcf. This compares to 649 bcf injections in the same nine weeks last year and 560 bcf for a five-year average.
Current stocks compared to last year and 5-year average
After the 132 bcf build last week, natural gas inventories as of May 29 were ~51% higher than last year’s levels and 1% higher than the five-year average. This is the first time inventories have crossed the five-year average since February this year.
The markets will be keeping a close watch to see if inventories will keep outpacing the five-year average, resonating robust US natural gas production. If the beats sustain for many weeks, it will be bearish for natural gas prices.
The EIA’s May STEO (Short-Term Energy Outlook) forecasts end-of-injection-season inventories in October at 3,890 bcf. This is 92 bcf higher than the five-year average.
The next STEO is expected to come out on June 9.
In the next part of this series, we’ll see how natural gas prices performed this week.