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Higher Inventories Might Support Natural Gas Prices

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Natural gas inventory data

In the week ending April 20, natural gas inventories declined by 18 Bcf (billion cubic feet) to 1,281 Bcf—based on the EIA’s (U.S. Energy Information Administration) data announced on April 26. The fall was 7 Bcf more than the market’s expectation. On April 26, natural gas June futures rose 1.1% due to the bullish inventory data.

In the week ending April 20, the negative difference between natural gas inventories and the five-year average widened by 3.4 percentage points compared to the previous week. The difference is called the “inventories spread.” For the week ending April 20, the inventories spread was at -29.1%. The current natural gas inventories are almost 30% below their five-year average inventory levels for this time of the year.

In the week ending April 13, the inventories spread was at -25.7%. Natural gas prices are usually inversely related to the inventories spread. The above graph illustrates this relationship.

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

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Inventories spread and natural gas prices

On April 26–May 1, natural gas June futures fell 1.3%. On April 26, the EIA released the natural gas inventory report for the week ending April 20. The bullish inventory data might have limited natural gas’s downside during this period.

Since April 26, Southwestern Energy (SWN), Gulfport Energy (GPOR), and Range Resources (RRC) have fallen 6.9%, 4.3%, and 1.8% to date—the largest fall on our list of natural gas–weighted stocks.

On April 26–May 1, the Fidelity MSCI Energy Index ETF (FENY) and the iShares Global Energy ETF (IXC) fell 1.7% and 1%, respectively.

What rise should the market expect?

On May 3, the EIA is scheduled to release the natural gas inventory report for the week ending April 27. Any rise below 49 Bcf would push the inventories spread further into the negative territory. Any unseasonal fall in the inventory levels, like in the week ending April 20, could be bullish for natural gas prices.

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