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Why Are Natural Gas Prices Falling ahead of the EIA Report?

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Sep. 3 2015, Published 2:18 p.m. ET

EIA inventory report

On September 3, 2015, the EIA (U.S. Energy Information Administration) is expected to release the weekly US natural gas in storage report. Last week, the EIA estimated that the natural gas stockpile increased by 69 Bcf (billion cubic feet) to 3,099 Bcf for the week ending August 21, 2015. For the week ending August 14, 2015, the natural gas stockpile rose by 53 Bcf.

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EIA inventory estimates

The natural gas stockpile increased for the twenty-first consecutive week as of the week ending August 28, 2015. The data compiled by Bloomberg suggest that natural gas inventories could increase by 90 Bcf for the week ending August 28, 2015.

The current natural gas stockpile is 18% more than the levels of 2,619 Bcf in 2014. They are also 2.90% above the five-year average inventory of 3,011 Bcf. The five-year seasonal increase over this period is 60 Bcf. Mild weather and increasing natural gas production are increasing natural gas supplies. The consensus for larger-than-expected inventory increases and mild weather could pressure natural gas prices in the oversupplied market.

Long-term lower natural gas prices should continue to affect the margins of upstream players like Cimarex Energy (XEC), Chesapeake Energy (CHK), and Devon Energy (DVN). Combined, these stocks account for 3.63% of the SPDR Oil and Gas ETF (XOP). These companies’ natural gas production mixes are greater than 43% of their total production.

Energy ETFs like the Energy Select Sector SPDR ETF (XLE) and XOP are also influenced by natural gas prices. These ETFs diverged from the direction of natural gas prices in yesterday’s trade.

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