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How Long Will Natural Gas Inventories Pressure US Prices?

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EIA’s natural gas inventories 

The EIA (U.S. Energy Information Administration) released its weekly natural gas inventory report on September 1, 2016. It reported that US natural gas inventories rose by 51 Bcf (billion cubic feet) to 3.4 trillion cubic feet from August 19 to August 26, 2016.

Wall Street Journal survey estimated that US natural gas inventories may have risen by 43 Bcf (billion cubic feet) in the same period. The larger-than-expected rise in US natural gas inventories pressured natural gas prices on September 1, 2016. For more on natural gas prices, read parts one and two of this series.

The five-year average natural gas injection for this period is 67 Bcf. US natural gas inventories rose by 96 Bcf in the corresponding week in 2015. They rose by 11 Bcf in the week ended August 19, 2016.

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US natural gas inventories by region 

The EIA divides the United States into five storage regions:

  • East
  • Midwest
  • Mountain
  • Pacific
  • South Central

Below are the movements in natural gas inventories for these regions from August 19 to August 26, 2016:

  • The East region rose by 21 to 796 Bcf.
  • The Midwest region rose by 29 Bcf to 904 Bcf.
  • The Mountain region rose by 3 Bcf to 222 Bcf.
  • The Pacific region was flat at 310 Bcf.
  • The South Central region fell by 2 Bcf to 1.1 Tcf (trillion cubic feet).

Impact of natural gas inventories

For the week ended August 26, 2016, US natural gas inventories were 11% higher than their five-year average. They were also 8% higher than in the corresponding week in 2015.

The EIA estimates that US natural gas inventories will be ~4.0 trillion cubic feet by the end of October 2016, the start of the 2016–2017 heating season. This would be the highest level on record for this period of the year. High US natural gas inventories could weigh on natural gas prices.

Lower natural gas prices have a negative impact on the profitabilities oil and gas producers such as Range Resources (RRC) and Gulfport Energy (GPOR).

The roller coaster ride in oil and gas prices affects ETFs and ETNs such as the VelocityShares 3X Long Natural Gas ETN (UGAZ), the ProShares Ultra Bloomberg Crude Oil ETF (UCO), 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 the next part of this series. 

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