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Change in Inventory Levels Might Support Natural Gas Prices

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Natural gas inventory data

In the week ending April 27, natural gas inventories rose by 62 Bcf (billion cubic feet) to 1,343 Bcf—based on the EIA’s (U.S. Energy Information Administration) data announced on May 3. The rise was 15 Bcf more than the market’s expectation. On May 3, natural gas June futures fell 1% due to bearish inventory data.

In the week ending April 27, the negative difference between natural gas inventories and their five-year average contracted by 70 basis points compared to the previous week. The difference is called the “inventories spread.” For the week ending April 27, the inventories spread was at -28.4%.

In the week ending April 20, the inventories spread was at -29.1%. Natural gas prices are usually inversely related to the inventories spread. The above graph illustrates this relationship.

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Inventories spread and natural gas prices

On May 3–8, natural gas June futures rose 0.2%. On May 3, the EIA released the natural gas inventory report for the week ending April 27. The contraction in the negative inventories spread might have limited natural gas’s upside during this period.

Since May 3, Antero Resources (AR), Cabot Oil & Gas (COG), and Gulfport Energy (GPOR) have risen 0.8%, 1.1%, and 3.3% to date—the underperformers on our list of natural gas–weighted stocks.

On May 3–8, the Fidelity MSCI Energy Index ETF (FENY) and the iShares Global Energy ETF (IXC) rose 1.9% and 0.9%, respectively. These ETFs hold natural gas producer stocks.

Inventory support natural gas prices       

On May 10, the EIA is scheduled to release the natural gas inventory report for the week ending May 4. Any rise below 54 Bcf would push the inventories spread further into the negative territory—a bullish factor for natural gas prices.

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