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Inventories Spread Could Boost Natural Gas Prices

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Nov. 20 2020, Updated 5:23 p.m. ET

Natural gas inventory

In the week ending August 18, 2017, natural gas inventories rose by 43 Bcf (billion cubic feet) to 3,125 Bcf. The rise in natural gas inventories was just 1 Bcf below the market’s expectation. The EIA (U.S. Energy Information Administration) reported the data on August 24, 2017. On the same day, natural gas (GASL) October futures rose 0.7%.

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Inventories spread

The difference between natural gas inventories and its five-year average, the inventories spread, could influence natural gas prices. A rise in the inventories spread could be a negative development for natural gas prices. Any contraction or reversal in the spread could boost natural gas prices.

For example, when natural gas futures settled at their 17-year low on March 3, 2016, natural gas inventories were 41.5% more than their five-year average.

Based on the latest data, the inventories spread fell by 30 basis points—compared to the previous week. Since the release of the inventory data on August 24, 2017, natural gas active futures have fallen 1.4%. In Part 1 of this series, we discussed the factors that impacted natural gas prices.

Market estimate

According to market estimates, in the week ending August 25, 2017, natural gas stockpiles could rise by 33 Bcf. The EIA will report the natural gas inventory data for this week on August 31, 2017. During this period last year, natural gas inventories rose by 51 Bcf. However, any rise up to 69 Bcf won’t increase the inventories spread.

The inventories spread could impact natural gas prices. However, its impact on equity indexes such as the S&P 500 Index (SPY) and the Dow Jones Industrial Average Index could be limited. Natural gas–weighted stocks such as EQT (EQT) and Rice Energy (RICE) might not track natural gas price movements in the short term.

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