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Natural Gas Inventory: Analyzing the Expectations

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Natural gas inventory data

In the week ending April 13, natural gas inventories declined by 36 Bcf (billion cubic feet) to 1,299 Bcf—based on the EIA’s (U.S. Energy Information Administration) data announced on April 19. The fall in the EIA’s data was 13 Bcf more than the market’s expectation. On April 19, natural gas June futures fell 2.6%. Natural gas oversupply concerns could have dragged natural gas prices on the day.

However, in the week ending April 13, the negative difference between natural gas inventories and the five-year average widened by 3.8 percentage points compared to the previous week. The difference is called the “inventories spread.” For the week ending April 13, the “inventories spread” was at -25.7%.

In the week ending April 6, the inventories spread was at -21.9%. Natural gas prices are usually inversely related to the inventories spread. The above graph illustrates the broadly inverse relationship.

So, given natural gas inventories’ steady fall deeper into negative territory and the bullish charting signs discussed in Part 1, natural gas could be in for another upward move.

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Inventories spread and natural gas prices

On April 19–24, natural gas June futures rose 4.4%. On April 19, the EIA released the natural gas inventory report for the week ending April 13.

Since April 19, Gulfport Energy (GPOR) and Cabot Oil & Gas (COG) have fallen 0.7% and 1.3% to date—the smallest fall on our list of natural gas–weighted stocks. Range Resources (RRC) fell 5.7%–the most on our list during this period.

The S&P 500 Index (SPY) fell 2.2% during this period. Equity market sentiments could impact stocks despite underlying fundamental drivers.

On April 19–24, energy ETFs, the Fidelity MSCI Energy Index ETF (FENY) and the iShares Global Energy ETF (IXC) fell 1% and 0.8%, respectively.

What rise should the market expect?

On April 26, the EIA is scheduled to release the natural gas inventory report for the week ending April 20. Any rise below 45 Bcf would push the inventories spread further into the negative territory. A surprise fall in the inventory levels could be bullish for natural gas prices.

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