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Why Did the EIA Cut Its Production Estimates for Natural Gas?

Rabindra Samanta - Author
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Dec. 4 2020, Updated 10:52 a.m. ET

EIA cut its production estimates for natural gas

The EIA (U.S. Energy Information Administration) lowered its production estimates for natural gas. On April 11, the EIA said that natural gas production in the seven key shale drilling regions should fall by 491 million cubic feet per day, or 1.1%, in May—compared to April. The fall in production corresponds to lower natural gas prices. Natural gas prices have been lower. They hit an 18-year low due to higher production and inventories. On April 12, 2016, natural gas prices rose by 4.8%. At the end of March 2016, US (SPY) natural gas inventories were at 2.5 trillion cubic feet—67% above the levels in 2015 and 53% above their five-year average. One of the reasons behind the high inventory build up is higher-than-normal temperatures this winter.

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ETFs and natural gas–weighted stock

Natural gas tracking ETFs like the United States Natural Gas (UNG) take price cues from movements in natural gas prices. Natural gas production weighted stocks such as Cabot Oil & Gas  (COG), EQT (EQT), and Rice Energy (RICE) also take price cues from natural gas prices. However, natural gas–weighted stocks also correlate to crude oil prices. To learn more about the correlation of natural gas weighted stock with crude oil read Natural Gas Rises, Key Stocks Rally: Why the Rally Is Unstable. The above shows price performance of UNG in the past year.

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