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Inventories Spread: Bullish or Bearish for Natural Gas Prices?

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Nov. 20 2020, Updated 5:02 p.m. ET

Natural gas inventory data

In the week ending August 11, 2017, natural gas inventories rose by 53 Bcf (billion cubic feet) to 3,082 Bcf based on the EIA’s (U.S. Energy Information Administration) data released on August 17, 2017. However, the market expected an addition of 47 Bcf for the same week.

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Inventories spread

The difference between natural gas inventories and their five-year average (or inventories spread) could be crucial for natural gas prices. When the difference expands, natural gas prices tend to fall. A contraction or reversal in the inventories spread could boost natural gas prices.

In the week ending March 4, 2016, natural gas inventories were 41.5% higher compared the five-year average. On March 3, 2016, natural gas (GASL) futures fell to their 17-year low.

In the week ending August 11, 2017, the natural gas inventories spread rose by 10 basis points—compared to the previous week. On August 17­–23, natural gas prices didn’t change. On August 17, 2017, the EIA reported inventory data.

Market forecast

In the week ending August 18, 2017, analysts forecast that natural gas inventories could rise by 44 Bcf. Any addition to inventories below the 53.4 Bcf level won’t increase the inventories spread. During the same period last year, inventories only rose by 11 Bcf.

The inventories spread could be important for natural gas prices. However, the inventories spread could have little impact on broader equity market indexes such as the S&P 500 Index (SPY) and the Dow Jones Industrial Average Index (DIA). Natural gas–weighted stocks such as EQT (EQT) and Rice Energy (RICE) are less aligned to natural gas prices.

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