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Inventories Spread: Bullish Driver for Weak Natural Gas Prices

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Inventory data

In the week ending November 3, 2017, natural gas inventories rose by 15 Bcf (billion cubic feet) to 3,790 Bcf. The rise was in line with the markets’ expected rise. The EIA (U.S. Energy Information Administration) reported the natural gas inventory data on November 9, 2017. Natural gas prices rose 0.8% on that day.

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Inventories spread

The inventories spread is the difference between natural gas inventories and their five-year average. In the week ending November 3, 2017, natural gas inventories were 1.8% below their five-year average. The inventories spread was at -1.8%. Natural gas inventories below the five-year average could be bullish for natural gas prices. If the inventories spread expands more to negative, then it could add more upside to natural gas prices.

In the same week, the inventories spread rose by 70 basis points into negative territory compared to the previous week. Since the EIA data were released on November 9, 2017, natural gas prices have fallen 3.8% to date.

Natural gas inventories might not impact natural gas–weighted stocks like Cabot Oil & Gas (COG) and Chesapeake Energy (CHK) much based on their weak correlations with natural gas prices. Because these natural gas–weighted stocks can escape natural gas prices, equity indexes like the S&P 500 Index (SPY) and the Dow Jones Industrial Average Index (DIA) might also ignore natural gas’s movements.

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