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Do US Natural Gas Inventories Support Prices?

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EIA’s natural gas inventories  

On July 7, 2016, the EIA (U.S. Energy Information Administration) released its weekly natural gas inventory report. It reported that US natural gas inventories had risen by 39 Bcf (billion cubic feet) to 3,179 Bcf between June 24, 2016, and July 1, 2016.

Wall Street Journal surveys projected that nationwide natural gas inventories might have risen by 44 Bcf during this period. The smaller-than-expected rise in US natural gas inventories pushed natural gas prices higher on July 7 and July 8. To learn more about natural gas prices, read the previous part of this series.

The five-year average natural gas inventory addition for this period was 77 Bcf. US natural gas inventories rose by 87 Bcf during the same period in 2015. They rose by 42 Bcf in the week ended June 24, 2016.

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US natural gas inventories by region 

The EIA divides the United States into five storage regions:

  1. East
  2. Midwest
  3. Mountain
  4. Pacific
  5. South Central

Below are the movements in natural gas inventories for these regions between June 24, 2016, and July 1, 2016.

  • The East region rose by 22–654 Bcf.
  • The Midwest region rose by 22–764 Bcf.
  • The Mountain region rose by four to 202 Bcf.
  • The Pacific region fell by two to 313 Bcf.
  • The South Central region fell by seven to 1,246 Bcf.

Impact of natural gas inventories

For the week ended July 1, 2016, natural gas inventories were 20.4% higher than they were during the same period in 2015. They were also 23.2% higher than their five-year average.

In its Short-Term Energy Outlook Report for June 2016, the EIA estimated that US natural gas inventories would be 4,161 Bcf by the end of October 2016, the beginning of the heating season in 2016–2017. This would be the highest level on record. High natural gas inventories will limit the upside potential for natural gas prices.

High natural gas prices benefit US natural gas producers such as Gulfport Energy (GPOR), Antero Resources (AR), Exco Resources (XCO), and Ultra Petroleum (UPL). The uncertainty in oil and gas prices affects ETFs and ETNs such as the Direxion Daily Natural Gas Related Bull 3X Shares ETF (GASL) and the VelocityShares 3x Inverse Natural Gas ETN (DGAZ).

The US natural gas rig count also plays a vital role in driving natural gas prices. To learn more, read on to the next part of this series. 

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