Could Natural Gas Prices Rise after Release of Inventory Data?



Inventory data

In the week ended December 8, 2017, natural gas inventories fell by 69 Bcf (billion cubic feet) compared to the expected decline of 55 Bcf. In the same week, natural gas inventories reached 3,626 Bcf.

The EIA (Energy Information Administration) released this inventory report on December 14, 2017. On the same day, natural gas futures fell 1.1%.

Inventories spread has pressured natural gas prices

The gap between natural gas inventories and their five-year average level could directly impact natural gas prices. This gap is known as the inventories spread.

A negative inventories spread, or natural gas inventories below their five-year average, could boost natural gas prices. However, if the inventories spread becomes less negative or turns positive, it could stop natural gas gains or even cause prices to fall.

In the week ended December 8, the inventories spread was -0.7%, compared to -1.0% during the previous week. This trend could explain the fall in natural gas prices on December 14, 2017, after the EIA released its inventory data.

How much of a fall in inventories can encourage the bulls?

A fall of more than 123 Bcf in the natural gas inventories level is required to push the inventories spread deeper into negative territory. The market expects a fall of 160 Bcf in natural gas inventories.

If the EIA natural gas inventory report scheduled for December 21 meets the market’s expected fall, it could point to a bullish recovery in natural gas prices. On December 19, natural gas prices were only ~5.1% above their lowest closing price for 2017.

Many natural gas–heavy stocks such as WPX Energy (WPX), Gulfport Energy (GPOR), and Antero Resources (AR) have not been recently influenced by natural gas prices. As a result, indexes such as the S&P 500 Index (SPY) and the Dow Jones Industrial Average Index (DIA)which contain energy stocks, could also ignore natural gas prices.

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