Required fall in inventories

On April 11, the EIA (U.S. Energy Information Administration) is scheduled to release its natural gas inventory report for the week ending April 5. Any rise less than ~3 Bcf (billion cubic feet) could cause the inventories spread to expand more into the negative territory. However, Reuters analysts expect an addition of 15 Bcf, which would contract the negative inventories spread by 70 basis points—a concern for natural gas prices. The inventories spread is the difference between natural gas inventories and their five-year average.

EIA Inventory Data Might Not Be Bullish for Natural Gas

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Inventories spread and natural gas prices

In the week ending March 29, the inventories spread was -30.9%. During this period, the inventories spread contracted by ~2.3 percentage points—compared to the previous week. On April 4, the EIA reported the natural gas inventory data for the week ending March 29.

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 April 4, the natural gas May futures have risen 2.1%. During the same period, natural gas–weighted stocks Southwestern Energy (SWN), Chesapeake Energy (CHK), and Cabot Oil & Gas (COG) rose 3.7%, 4%, and 5.1%, respectively, and outperformed their peers. Natural gas prices are important for these upstream stocks. Despite the contraction in the negative inventories spread, the outage at Cheniere Energy’s Sabine Pass liquefied natural gas export terminal in Louisiana is over, which might have supported natural gas prices.

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