Higher Inventories Might Support Natural Gas



Required change in inventories

On April 18, the EIA (U.S. Energy Information Administration) is scheduled to release its natural gas inventory report for the week ending April 12. Any rise less than ~15 Bcf (billion cubic feet) could cause the inventories spread to expand more into the negative territory. However, Reuters analysts expect an addition of 80 Bcf, which would contract the negative inventories spread by 3.9 percentage points—a concern for 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 April 5, the inventories spread was -29.3%. During this period, the inventories spread contracted by ~1.6 percentage points—compared to the previous week. On April 11, the EIA reported the natural gas inventory data for the week ending April 5.

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 11, the natural gas May futures have fallen 3.5%. During the same period, natural gas–weighted stocks Range Resources (RRC), Chesapeake Energy (CHK), and Gulfport Energy (GPOR) returned 0.2%, -2.1%, and -7.2%, respectively, and underperformed their peers. Natural gas prices are important for these upstream stocks. The contraction in the negative inventories spread might have dragged natural gas prices.


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