Could the Inventories Spread Pull Natural Gas Prices Down?

Inventory data

In the week ended September 15, 2017, natural gas inventories rose 97 Bcf (billion cubic feet) to 3,408 Bcf, 4 Bcf more than the market had expected. The EIA (U.S. Energy Information Administration) reported this data on September 21, 2017. That day, natural gas November futures fell 4.5%.

Could the Inventories Spread Pull Natural Gas Prices Down?

Inventories spread

The difference between natural gas inventories and their five-year average (the inventories spread) is currently positive, as inventories have exceeded their five-year average. The inventories spread and natural gas (GASL) prices usually move in opposite directions.

For example, in the week ended March 4, 2016, natural gas inventories were 41.5% above their five-year average, and natural gas prices settled at a 17-year low.

According to the EIA, the natural gas inventories spread grew 70 basis points. However, natural gas prices have risen 1.8% since the release of the EIA inventory data, possibly because natural gas inventories were 3.8% below last year’s level.

Market forecast

The market expects natural gas inventories to rise 77 Bcf in the week ended September 22, 2017. During the same period last year, natural gas inventories rose 49 Bcf. However, any rise up to 85.5 Bcf would not increase the inventories spread. The EIA will report natural gas inventory data on September 28, 2017.

Changes in the inventories spread may not affect natural gas-weighted stocks such as WPX Energy (WPX) or Cabot Oil & Gas (COG) based on their correlation with natural gas prices. Similarly, equity indexes such as the S&P 500 (SPY) and the Dow Jones Industrial Average (DIA) may not be affected much.