Will the Inventory Spread Help Natural Gas Rise?



Inventory data

In the week ended November 17, natural gas inventories were cut by 46 Bcf (billion cubic feet) to 3,726 Bcf. The market had expected a fall of 51 Bcf. The EIA reported natural gas inventory data on November 22. However, on the same day, natural gas prices fell 1.6%. The fall in natural gas prices could be because of the lower-than-anticipated fall in inventory.

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Inventories spread

Natural gas inventories and their five-year average could be a key indicator for natural gas prices. If natural gas inventories fall below their five-year average, they could bolster natural gas (GASL)(GASX) prices. The difference between natural gas inventories and their five-year average can be called the “inventories spread.”

Since the week ended October 27, the inventories spread has been expanding into negative territory. Between October 27 and November 22, natural gas prices have risen 7.8%.

In the week ended November 17, natural gas inventories were 3.1% below their five-year average. The inventories spread expanded further into negative territory by 50 basis points more than a week before per data released on November 22.

For the week ended November 24, inventories must fall by at least ~44 Bcf for a further expansion of the inventories spread into negative territory.

However, while it would be a bullish factor for natural gas prices, any further expansion in the inventories spread may not spur broader market indexes like the S&P 500 Index (SPY) and the Dow Jones Industrial Average Index (DIA).


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