What to Expect from Natural Gas Inventories This Week



Required fall in inventories

On March 14, the EIA (U.S. Energy Information Administration) is scheduled to release its natural gas inventory report for the week ending March 8. Any fall by more than ~75 Bcf (billion cubic feet) could cause the inventories spread to expand more into the negative territory. Reuters analysts expect a larger draw of 198 Bcf, which would expand the negative inventories spread by 7 percentage points. The larger draw might not support natural gas prices because of the factors that we discussed in Part 1. 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 March 1, the inventories spread was -25%. During this period, the inventories spread expanded by ~3.4 percentage points compared to the previous week. On March 7, the EIA reported the natural gas inventory data for the week ending March 1.

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 March 7, the natural gas April futures have fallen 2.9%. During the same period, natural gas–weighted stocks Chesapeake Energy (CHK), Antero Resources (AR), Gulfport Energy (GPOR), and Southwestern Energy (SWN) fell 3%, 1.6%, 0.5%, and 0.5%, respectively, and underperformed their peers. Natural gas prices are important for these upstream stocks. The factors discussed in Part 1 might have dragged natural gas prices despite an expansion in the inventories spread.


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