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How Are Natural Gas Inventories Affecting Prices?

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Last week’s data

According to the EIA (U.S. Energy Information Administration) data released on June 2, 2016, natural gas (DGAZ) (UGAZ) (BOIL) (GASL) (FCG) inventories rose by 82 Bcf (billion cubic feet) in the week ending May 27, 2016, over the previous week.

That week, natural gas inventories reached 2,907 Bcf—35% higher than their five-year average and 32.4% higher than their level a year ago. On June 9, the EIA will release inventory data for the week ending June 3.

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Natural gas inventories and prices

Over the last ten years, whenever natural gas inventories have been higher than their five-year average, prices have fallen. On the other hand, between November 2013 and April 2014, when inventory levels fell short of the five-year average by the highest amount in the past ten years, natural gas prices spiked to as high as $6.14 per MMBtu (British thermal units in millions).

The downturn in natural gas prices since June 2008 could be linked to higher inventories compared to the five-year average. However, the weather has also played an important role in driving natural gas prices in the short term. Long-term production and inventory dynamics have affected natural gas prices in the long term.

The above analysis could be important for natural gas–weighted stocks such as Gulfport Energy (GPOR), Comstock Resources (CRK), and Rice Energy (RICE).

In the final part of this series, we’ll discuss the role of the US dollar’s recent fall in driving natural gas prices.

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