Inventories Spread: Will Natural Gas Continue Its Gains?

Inventory data

In the week ended July 28, 2017, natural gas inventories rose by 20 Bcf (billion cubic feet) to 3,010 Bcf. The EIA reported this inventory data on August 3, 2017. The market expected a rise of 23 Bcf, while last year during this period, inventory fell by six Bcf. On August 3, 2017, natural gas futures fell 0.4%.

Inventories Spread: Will Natural Gas Continue Its Gains?

Inventory spread

When the difference between natural gas inventories and their five-year average rises, natural gas prices usually fall. On the contrary, when the difference falls, it usually impacts natural gas prices positively.

For example, on March 3, 2016, natural gas (BOIL) active futures plunged to their 17-year low. Natural gas inventories were 41.5% more than their five-year average for the week ended March 4, 2016.

Last week, the inventories spread contracted by 90 basis points. Moreover, natural gas prices rose 2.9% between August 3 and August 9, 2017. On August 3, 2017, the EIA reported natural gas inventory data.

Market forecasts

Natural gas inventories are expected to rise 38 Bcf for the week ended August 4, 2017. Last year, in the week ended August 5, 2016, inventories rose 29 Bcf. A rise in natural gas inventories up to 56.3 Bcf wouldn’t increase the inventories spread in the week ended August 4, 2017, compared to July 28, 2017.

Fluctuations in the natural gas inventories spread are important for natural gas prices, but could have a small impact on natural gas-weighted stocks such as EQT (EQT) and Rice Energy (RICE) in the short run. So, natural gas price fluctuations may have some impact on the S&P 500 Index (SPY) as well as the Dow Jones Industrial Average Index (DIA). These two equity indexes have some exposure to oil and gas companies.