Natural gas inventory data
In the week ending March 9, 2018, there was a decline of 93 Bcf (billion cubic feet) in natural gas inventories to 1,532 Bcf based on the EIA’s report on March 15, 2018. Natural gas prices fell 1.8% on the same day. The fall in natural gas inventories was 6 Bcf below the market’s expected fall.
However, the fall in natural gas inventories helped the “inventories spread” expand by 60 basis points further into the negative territory on a week-over-week basis in the week ending March 9, 2018. The inventories spread is the difference between natural gas inventories and the five-year average.
The inventories spread and natural gas prices tend to move inversely, as you can see in the above chart.
From March 15, 2018, to date, natural gas April futures have declined 0.2%. During this period, natural gas ETFs like the United States Natural Gas ETF (UNG) and the ProShares Ultra Bloomberg Natural Gas ETF (BOIL) fell 0.5% and 1.1%. The fall could be due to oversupply concerns, which we discussed in Part 1 and Part 2.
What can the market expect?
On March 22, 2018, the EIA will report the inventory data for the week ending March 16, 2018. A fall of more than 44 Bcf would help the inventories spread to expand more into the negative zone. The market expects a fall of 88 Bcf in natural gas inventories for the week ending March 16. A fall of this magnitude would take the inventories spread to -18.6%—an expansion of 2.4 percentage points more into the negative zone from a week ago, which could please natural gas bulls.
Changes in the natural gas inventories spread would be important for natural gas–weighted stocks like Antero Resources (AR) and Cabot Oil & Gas (COG)—upstream stocks with at least a 60% production mix in natural gas. In the trailing week, Antero Resources and Cabot Oil & Gas fell 5.4% and 6.1%. Natural gas futures fell 4% during this period.
On March 13–20, 2018, the correlation between natural gas and US crude oil active futures was 88.7%.
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