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US Natural Gas Inventories Beat Expectations yet Prices Rose

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US natural gas inventories

On Thursday, September 24, 2015, the EIA (U.S. Energy Information Administration) published its “Natural Gas Weekly Update” for the week ended September 18. The report showed that US natural gas inventories in storage increased 106 Bcf (billion cubic feet), causing inventories to rise to 3,440 Bcf that week. This was more than analysts’ expectations of a 97 Bcf increase.

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What this means for investors

When inventories rise more than market expectations, it’s usually bearish for natural gas prices. It either means that demand was less than expected or that supply was greater than expected.

However, natural gas prices settled 0.85% higher at $2.591 per MMBtu (million British thermal units) on Thursday, September 24, compared to the previous day’s close. In the next part of this series, we’ll take a detailed look at last week’s price movements.

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 earn more money when natural gas prices rise and less money when prices fall. All these companies combined make up ~2% of the Vanguard Energy ETF (VDE).

Higher natural gas prices may also positively affect MLPs such as ONEOK Partners (OKS). Higher prices may persuade producers to produce more natural gas, which would mean higher volumes for MLPs to transport.

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Weekly data

The 106 Bcf net injection in the week ended September 18 compares to a net injection of 96 Bcf in the corresponding week last year and a five-year average net injection of 83 Bcf.

According to the EIA, from the week ended April 3, the beginning of the injection season, through the week ended September 18, net injections totaled 1,979 Bcf. In comparison, 2,141 Bcf were injected in the corresponding 25 weeks last year. The five-year average injection for the corresponding 25 weeks is 1,641 Bcf.

Current inventories

After the 106 Bcf increase in the week ended September 18, natural gas inventories were ~15.7% higher than last year’s levels and 4.5% 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.

However, as we discussed earlier, prices rose on Thursday despite these bearish numbers. We’ll try to find out the reason for this increase in the following part of this series.

EIA forecasts

The EIA’s September STEO (“Short-Term Energy Outlook”) report released on September 9 forecasts that inventories will total 3,840 Bcf at the end of the injection season in October. That would be 43 Bcf, or 1.1%, higher than the five-year average.

The EIA will release its next STEO on October 6.

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