Rising Inventories Might Help Natural Gas Bulls

Natural gas inventory data

In the week ending May 25, natural gas inventories rose by 96 Bcf (billion cubic feet) to 1,725 Bcf—based on the EIA’s (U.S. Energy Information Administration) data announced on May 31. The increase was 7 Bcf less than what a survey by S&P Global Platts expected. On May 31, natural gas July futures rose 2.3%.

Rising Inventories Might Help Natural Gas Bulls

Inventories spread and natural gas prices

In the week ending May 25, the negative difference between natural gas inventories and their five-year average contracted by 90 basis points compared to the previous week. The difference is called the “inventories spread.” For the week ending May 25, the inventories spread was at -22.5%.

In the week ending May 18, the inventories spread was at -23.4%. 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.

On May 31–June 5, natural gas July futures fell 2.1%. On May 31, the EIA released the natural gas inventory report for the week ending May 25.

Since May 31, Gulfport Energy (GPOR), Chesapeake Energy (CHK), and Antero Resources (AR) have fallen 7.4%, 3.4%, and 1.3%, respectively—the underperformers on our list of natural gas–weighted stocks.

On May 31–June 5, the Fidelity MSCI Energy Index ETF (FENY) and the iShares Global Energy ETF (IXC) fell ~1% and 0.5%, respectively. These ETFs hold natural gas producer stocks.

Higher inventory levels

On June 7, the EIA is scheduled to release the natural gas inventory report for the week ending June 1. Any rise below 81 Bcf would push the inventories spread further into negative territory—a factor that might help natural gas bulls.