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2016 Begins with a Massive Drawdown of Natural Gas Inventory

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Jan. 11 2016, Updated 10:54 a.m. ET

Natural gas inventory 

The EIA (U.S. Energy Information Administration) published its weekly natural gas inventory report on Thursday, January 7, 2015. According to the government report, the US natural gas inventory fell by 117 Bcf (billion cubic feet) to 3,643 Bcf for the week ending January 1, 2016. The natural gas inventory had fallen by 58 Bcf (billion cubic feet) to 3,756 Bcf for the week ending December 25, 2015.

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Natural gas inventory by region

The active weekly US natural gas inventory fell for the sixth straight week. Surveys from The Wall Street Journal suggested that the US natural gas inventory would fall by 100 Bcf for the week ending January 1, 2016. The greater-than-expected fall in the natural gas inventory led to the exponential rise in natural gas prices, as covered in the previous part of this series.

The EIA divides natural gas storage into five regions—the East, Midwest, Mountain, Pacific, and South Central regions. The Midwest and Pacific regions saw the biggest drops in natural gas inventory for the week ending January 1, 2016. Their inventories fell by 42 Bcf and 25 Bcf, respectively.

The current natural gas inventory is 535 Bcf higher than last year’s level and 14.6% more than the five-year average of 3,179 Bcf. The record-high natural gas inventory will continue to put pressure on natural gas prices. Lower gas prices affect natural gas producers like EXCO Resources (XCO), Anadarko Petroleum (APC), Devon Energy (DVN), and Chesapeake Energy (CHK).

The volatility in oil and gas prices also affects ETFs and ETNs like the Guggenheim S&P 500 Equal Weight Energy ETF (RYE), the PowerShares DB Energy Fund (DBE), and the VelocityShares 3x Long Natural Gas ETN (UGAZ).

In the next part of this series, we’ll discuss the latest natural gas rig count.

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