Analyzing Natural Gas Inventory Data


Nov. 20 2020, Updated 4:36 p.m. ET

Required fall in inventories

On March 7, the EIA (U.S. Energy Information Administration) is scheduled to release its natural gas inventory report for the week ending March 1. Any fall by more than ~86 Bcf (billion cubic feet) could cause the inventories spread to expand more into the negative territory. Reuters analysts expect a larger draw of 127 Bcf, which would expand the negative inventories spread by 2.2 percentage points and might support natural gas prices. The inventories spread is the difference between natural gas inventories and their five-year average.

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Inventories spread and natural gas prices

In the week ending February 22, the inventories spread was -21.6%. During this period, the inventories spread expanded by ~4.1 percentage points compared to the previous week. On February 28, the EIA reported the natural gas inventory data for the week ending February 22.

Natural gas inventories spread and stocks

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 February 28, the natural gas April futures have risen 2.6%. During the same period, natural gas–weighted stocks Southwestern Energy (SWN), EQT (EQT), Chesapeake Energy (CHK), and Gulfport Energy (GPOR) rose 10.6%, 7.1%, 6.1%, and 4.8%, respectively, and outperformed their peers. Natural gas prices are important for these upstream stocks. The factors discussed in Part 1 might have supported natural gas prices apart from an expansion in the inventories spread.


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