Natural gas inventories
The EIA’s[1. US Energy Information Administration] STEO (Short Term Energy Outlook) report released on December 8, 2015, reported that natural gas working inventories reached a record high at 4,009 Bcf (billion cubic feet) on November 20, then fell to reach 3,880 Bcf as of Friday, December 4, 2014. Furthermore, The EIA expects that the natural gas inventory will fall to 1,862 Bcf by the end of March 2016.
Natural gas prices and a milder winter
Natural gas prices rallied after the release of the EIA’s weekly natural gas report on December 10, 2015, as it showed a greater-than-expected fall in the inventories by 76 Bcf for the week ended December 4. This then quickly fell back to close at $2.0 MMBtu (million British Thermal Units) on December 10.
The current inventory level is more than ~13% higher than the corresponding period last year. Consumption is expected to average at 76.5 Bcfd (billion cubic feet per day), or more than the consumption in 2014 by 3.4 Bcfd. But most of the demand is derived from the power sector. Residential demand is very low due to mild weather reported in most regions.
The heating season from November through March is the crest interest period for US gas utilization. Prices tend to rise in this period, but they’re actually falling due to warmer temperatures and a supply glut. The warm weather reported in the East Coast and Midwest regions can pull back the demand as less demand can worsen the prices further. So, the EIA is expecting natural gas heating users to save up to 13% of their spending compared to last winter.
Consumers are the gainers from lower gasoline prices, but lower prices affect natural gas producers such as Chevron (CVX), Antero Resources (AR), Southwestern Energy (SWN), Chesapeake Energy (CHK), and Newfield Resources (NFX). ETFs like the Energy Select SPDR (XLE) are also getting affected by holding investments from the above companies. CVX accounts for 13.8% of the XLE ETF.