Required change in inventories
On May 2, the EIA (U.S. Energy Information Administration) is scheduled to release its natural gas inventory report for the week ending April 26. Any rise less than ~55 Bcf (billion cubic feet) could cause the inventories spread to expand more into the negative territory. However, Reuters analysts expect an addition of 114 Bcf, which would contract the negative inventories spread by 3.3 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 19, the inventories spread was -21.6%. During this period, the inventories spread contracted by ~3.3 percentage points—compared to the previous week. On April 25, the EIA reported the natural gas inventory data for the week ending April 19.
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 25, the natural gas June futures have risen 2.8%. During the same period, natural gas–weighted stocks EQT (EQT), Antero Resources (AR), and Cabot Oil & Gas (COG) have fallen 0.4%, 1.8%, and 2.4%, respectively, and outperformed their peers. The remaining natural gas–weighted stocks ended in the red.
Natural gas prices are important for these upstream stocks. A fall of 3.5% in US crude oil prices might have dragged these natural gas–weighted stocks. Natural gas prices might be rising due to traders’ opposite positions on oil and natural gas. Energy traders might have switched from oil to natural gas due to an attractive risk-to-reward ratio in natural gas.