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July 17 Natural Gas Inventories Rise Less than Markets Expected

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Natural gas inventories

On Thursday, July 23, the EIA (U.S. Energy Information Administration) published its “Natural Gas Weekly Update” for the week ended July 17. The report shows that natural gas inventories increased 61 bcf (billion cubic feet) to 2,828 bcf that week. Analysts had been expecting a slightly larger increase of 70 bcf.

However, the EIA reported a reclassification that totaled 7 Bcf in the East Region of working gas to base gas. So the actual increase, including this reclassification, was 68 bcf.

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What this means for investors

When inventories rise less than market expectations, they’re bullish for natural gas prices. This either means that demand was greater than expected or supply was weaker than expected.

Higher natural gas prices mean higher revenues for natural gas producers such as Chesapeake Energy (CHK), Southwestern Energy (SWN), QEP Resources (QEP), and Cabot Oil & Gas (COG). These companies make more money when natural gas prices rise and less money when they fall.

All these companies combined make up ~2% of the iShares U.S. Energy ETF (IYE).

Higher natural gas prices may also positively affect MLPs such as ONEOK Partners (OKS). Higher prices may encourage producers to produce more natural gas, which means higher volume for MLPs to transport.

Weekly data

The 61 bcf net injection in the week ended July 17 compares to a net injection of 92 bcf in the corresponding week last year and a five-year average net injection of 53 bcf.

According to the EIA, from the week ended April 3, the beginning of the injection season, through the week ended July 17, net injections totaled 1,367 bcf. In comparison, 1,373 bcf were injected in the corresponding 16 weeks last year. The five-year average injection for the corresponding 15 weeks is 1,096 bcf.

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Current inventories

After the 61 bcf build in the week ended July 17, natural gas inventories were 28% higher than last year’s levels and ~3% higher than the five-year average. Inventories have been outpacing the five-year average since the week ended May 29. This is bearish for natural gas prices.

Forecasts

The EIA’s July STEO (“Short-Term Energy Outlook”) report released on July 7 forecasts the end of injection season’s (in October) inventories to total 3,919 bcf. This is 121 bcf or 3.2% higher than the five-year average.

The next STEO is expected to come out on August 11.

In the next part of this series, we’ll see how natural gas prices have been performing.

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