Change in Inventories Could Please Natural Gas Bulls

Natural gas inventory data

In the week ending June 1, natural gas inventories rose by 92 Bcf (billion cubic feet) to 1,817 Bcf—based on the EIA’s (U.S. Energy Information Administration) data announced on June 7. The data were in line with the expectations in a survey by S&P Global Platts. On June 7, natural gas July futures rose 1.2%.

Change in Inventories Could Please Natural Gas Bulls

Inventories spread and natural gas prices

In the week ending June 1, the negative difference between natural gas inventories and the five-year average contracted by 50 basis points—compared to the previous week. The difference is called the “inventories spread.” For the week ending June 1, the inventories spread was at -22%.

In the week ending May 25, the inventories spread was at -22.5%. Natural gas prices are usually inversely related to the inventories spread. However, the relationship seems to be more biased towards the downside for prices when inventories rise above the five-year average. The market might be confident about having ample future supplies instead of being concerned about demand getting out of hand. We discussed the record-setting forecast for natural gas supplies in 2018 in the previous part of this series.

On June 7–12, natural gas July futures rose 0.3%. On June 7, the EIA released the natural gas inventory report for the week ending June 1.

Since June 7, Southwestern Energy (SWN), Gulfport Energy (GPOR), and Chesapeake Energy (CHK) have risen 4.3%, 3.1%, and 2.3%, respectively—the outperformers on our list of natural gas–weighted stocks.

On June 7–June 12, the Fidelity MSCI Energy Index ETF (FENY) and the iShares Global Energy ETF (IXC) fell ~0.7% and 0.5%, respectively. These ETFs hold natural gas producer stocks.

Higher inventory levels

On June 14, the EIA is scheduled to release the natural gas inventory report for the week ending June 8. Any rise below 71 Bcf would push the inventories spread into negative territory—a factor that might please natural gas bulls. In the past five years, natural gas inventories have risen by an average of ~91 Bcf at this time of year.