Higher Inventories Could Support Natural Gas Prices

Natural gas inventory data

In the week ending June 8, natural gas inventories rose by 96 Bcf (billion cubic feet) to 1,913 Bcf—based on the EIA’s (U.S. Energy Information Administration) data announced on June 14. The addition was 8 Bcf more than the expectations in a survey by S&P Global Platts. On June 14, natural gas July futures rose 0.1%.

Higher Inventories Could Support Natural Gas Prices

Since June 14, natural gas July futures have fallen 2.2%. During this period, Gulfport Energy (GPOR), Chesapeake Energy (CHK), and Cabot Oil & Gas (COG) have risen 0.2%, 1.3%, and 1.4%, respectively—the underperformers on our list of natural gas–weighted stocks. All of the natural gas–weighted stocks on our list rose despite the fall in natural gas prices.

On June 14–19, the Fidelity MSCI Energy Index ETF (FENY) and the iShares Global Energy ETF (IXC) fell ~1% and 1.5%, respectively. These ETFs hold natural gas producer stocks.

Inventories spread and natural gas prices

In the week ending June 8, the negative difference between natural gas inventories and the five-year average contracted by one percentage point—compared to the previous week. The difference is called the “inventories spread.” For the week ending June 8, the inventories spread was at approximately -21%.

In the week ending June 1, the inventories spread was at approximately -22%. 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 possible upside in natural gas supplies in the previous part of this series.

Can the rise support natural gas prices?

On June 21, the EIA is scheduled to release the natural gas inventory report for the week ending June 15. Any rise below ~66 Bcf would push the inventories spread further into the negative territory—a factor that might support natural gas prices. In the past five years, natural gas inventories have risen by an average of ~83 Bcf at this time of the year.