Analyzing the Inventories Spread and Natural Gas Prices


Nov. 20 2020, Updated 3:00 p.m. ET

Inventories spread and natural gas prices

In the week ending August 24, the inventories spread was -19%. The inventories spread is the difference between natural gas inventories and their five-year average.

The inventories spread contracted by ~70 basis points compared to the previous week. On August 30, the EIA (U.S. Energy Information Administration) reported the natural gas inventory data for the week ending August 24.

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Natural gas inventories 

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 30, natural gas October futures have fallen 1.8%. During this period, natural gas–weighted stocks Southwestern Energy (SWN), Cabot Oil & Gas (COG), and Antero Resources (AR) fell 4.6%, 4.7%, and 5.2%, respectively, and underperformed their peers.

On August 30–September 4, the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) and the Energy Select Sector SPDR ETF (XLE) fell ~1.8% and ~1.0%, respectively. These ETFs hold natural gas producer stocks.

Inventories might boost natural gas prices

On September 6, the EIA is scheduled to release its natural gas inventory report for the week ending August 31. Any increase that falls below ~52 Bcf (billion cubic feet) could push the inventories to spread more into the negative territory, which could push natural gas prices higher.

Reuters analysts expected a rise in natural gas inventories of 49 Bcf last week. If the EIA’s report is in line with analysts’ estimates, then the inventories spread could expand slightly to -19.1%, which might dismay natural gas bears.


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