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Natural Gas Inventory Report Could Pressure Natural Gas Prices

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US natural gas inventory 

The EIA (U.S. Energy Information Administration) released its weekly natural gas inventory report on March 31, 2016. It reported that the US natural gas inventory fell by 25 Bcf (billion cubic feet) to 2,468 Bcf for the week ending March 25, 2016—compared to the previous week. Wall Street Journal surveys projected that natural gas inventories could have fallen by 24 Bcf for this period. The five-year average natural gas withdrawal during this period was 25 Bcf.

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US natural gas inventory by region 

The EIA divides the US into five storage regions:

  • East
  • Midwest
  • Mountain
  • Pacific
  • South Central

The South Central, Midwest, and East regions contribute to the majority of the natural gas stocks. The natural gas inventory fell by 16 Bcf and 14 Bcf to 555 Bcf and 439 Bcf, respectively, in the East and Midwest regions between March 18 and March 25, 2016. The weekly gas stockpile was almost flat in the Mountain, Pacific, and South Central regions at 147 Bcf, 262 Bcf, and 1,065 Bcf, respectively, for the same period.

Impact 

The weekly US natural gas inventories are 68% higher than the same period in 2015. They’re also 52% more than the five-year average. As a result, natural gas prices started to decline after the natural inventory report was released. Read more on the latest natural gas price movement in the first part of the series. High natural gas inventories will limit the upside for natural gas prices.

Multiyear low natural gas prices impact oil and gas producers’ revenue like Southwestern Energy (SWN), Vanguard Natural Resources (VNR), EXCO Resources (XCO), Ultra Petroleum (UPL), Breitburn Energy (BBEP), Memorial Production (MEMP), Cabot Oil & Gas (COG), and Gulfport Energy (GPOR).

The volatility in natural gas prices impacts ETFs and ETNs like the VelocityShares 3x Inverse Natural Gas ETN (DGAZ), the Direxion Daily Natural Gas Related Bull 3X Shares (GASL), the First Trust ISE-Revere Natural Gas (FCG), the United States Natural Gas ETF (UNG), and the Fidelity MSCI Energy ETF (FENY).

Next, we’ll analyze the latest update on natural gas rig counts.

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