15 Aug

Inventories Might Boost Natural Gas Prices

WRITTEN BY Rabindra Samanta

Inventories spread and natural gas prices

In the week ending August 3, the negative inventories spread, which is the difference between natural gas inventories and their five-year average, was at -19.5%. The inventories spread contracted by ten basis points compared to the previous week. On August 9, the EIA (U.S. Energy Information Administration) reported the natural gas inventory data for the week ending August 3.

Inventories Might Boost Natural Gas Prices

Natural gas prices are usually inversely related to the inventories spread. However, the relationship seems to be more biased toward a price downside when inventories rise above their five-year average. The market might be confident about having ample future supply instead of being concerned about demand getting out of hand.

Since August 9, natural gas September futures have risen 0.1%. During this period, natural gas–weighted stocks Southwestern Energy (SWN), Cabot Oil & Gas (COG), and Gulfport Energy (GPOR) have risen 0.4%, 0.8%, and -1%, respectively, and outperformed their peers. The remaining natural gas–weighted stocks on our list ended in the red during this period.

On August 9–14, the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) and the Energy Select Sector SPDR ETF (XLE) fell ~0.7% and ~0.4%, respectively. These ETFs hold natural gas producer stocks.

Inventories might boost natural gas prices

On August 16, the EIA is scheduled to release its natural gas inventory report for the week ending August 10. Any rise below ~45 Bcf could push the inventories spread further into the negative territory, which might push natural gas prices higher.

Analysts at Reuters estimated a 29 Bcf rise in natural gas inventories last week. If the EIA report is in line with analysts’ estimates, then the inventories spread would expand to -20.1%. The expansion would be the sixth consecutive instance that the additions to natural gas inventories are lower compared to their five-year average change for this time of the year—a factor that could please natural gas bulls.

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