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EIA’s Inventory Might Not Support Natural Gas Prices

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Jan. 24 2019, Published 10:25 a.m. ET

Inventories spread and natural gas prices

In the week ending January 11, the inventories spread was -11.4%. The inventories spread is the difference between natural gas inventories and their five-year average. During this period, the inventories spread contracted by 3.6 percentage points—compared to the previous week.

On January 17, the EIA (U.S. Energy Information Administration) reported the natural gas inventory data for the week ending January 11.

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Natural gas inventories

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

Since January 17, the natural gas March futures have fallen 7.9%. During the same period, natural gas–weighted stocks Range Resources (RRC), Antero Resources (AR), Chesapeake Energy (CHK), and Southwestern Energy (SWN) fell 9.6%, 6.2%, 5.6%, and 4.1%, respectively, and underperformed their peers.

On January 17–23, the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) and the Energy Select Sector SPDR ETF (XLE) fell 3.3% and 0.3%, respectively. These ETFs hold natural gas producer stocks.

Required fall in inventories

On January 24, the EIA is scheduled to release its natural gas inventory report for the week ending on January 18. Any fall by more than ~164 billion cubic feet could cause the inventories to expand into the negative territory. Reuters analysts expect a draw of 142 billion cubic feet, which would contract the negative inventories spread by 80 basis points and might not support natural gas prices.

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