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Drop in Natural Gas Inventories Impacted Natural Gas Futures

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Apr. 27 2018, Updated 10:15 a.m. ET

US natural gas inventories  

On April 26, the EIA published its natural gas storage report. The EIA reported that US natural gas inventories declined by 18 Bcf (billion cubic feet) to 1,281 Bcf on April 13–20. The inventories also dropped by 897 Bcf or 41.2% from a year ago.

A Reuters poll estimated that US natural gas inventories could have dropped by 12 Bcf on April 13–20. The larger-than-expected decline in natural gas inventories supported natural gas prices on April 26. June US natural gas futures rose 1.1% to $2.83 per MMBtu (million British thermal units) on April 26.

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The United States Natural Gas ETF (UNG) seeks to follow active natural gas futures. UNG rose 0.5% to $23.05 on April 26. The First Trust Natural Gas ETF (FCG) aims to track the performance of the index of stocks involved in the exploration and production of natural gas. FCG rose 1.2% to $22.25 on April 26.

UNG rose 4.3% on April 19–26, while FCG rose ~1% during the same period. US natural gas prices rose ~6.1% on April 19–26.

Natural gas–weighted stocks, Southwestern Energy (SWN) and Chesapeake Energy (CHK) rose more than 1%, respectively, on April 26. Southwestern Energy rose ~3.6% on April 19–26. Southwestern Energy is expected to produce natural gas between 804 Bcf and 831 Bcf in 2018. Chesapeake Energy fell ~0.3% from April 19–26. Chesapeake Energy is expected to produce natural gas between 825 Bcf and 875 Bcf in 2018. These stocks have natural gas production mixes that account for more than 60% of their overall output portfolio.

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Historical context 

The five-year average change in US natural gas inventories during this period of the year is a rise of 60 Bcf. The inventories also increased by 71 Bcf during the same period in 2017. US natural gas inventories declined by 36 Bcf on April 6–13.

Impact 

US natural gas inventories were ~29.1% below their five-year average, which is bullish for natural gas prices. An increase in natural gas inventories towards the five-year average could weigh on natural gas prices.

Next, we’ll discuss US natural gas production.

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