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Will EIA Inventory Data Support Natural Gas Prices?

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Inventories spread

In the week ending May 17, the inventories spread was -13.5%. During this period, the inventories spread contracted by ~1.2 percentage points compared to the previous week. On May 23, the EIA (U.S. Energy Information Administration) reported the natural gas inventory data for the week ending May 17. The inventories spread is the difference between natural gas inventories and their five-year average.

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Since May 23, the natural gas July futures have fallen 0.3%. During the same period, natural gas–weighted stocks Chesapeake Energy (CHK) and Gulfport Energy (GPOR) have fallen 5.8% and 5.3%, respectively, despite oil prices rising 2.1% during this period. The contraction in the negative inventories spread might have dragged these natural gas–weighted stocks.

Required change in inventories

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.

On May 30, the EIA is scheduled to release its natural gas inventory report for the week ending May 24. Any rise less than or equal to ~83 Bcf (billion cubic feet) could cause the inventories spread to expand more into the negative territory. However, analysts expect an addition of 100 billion cubic feet, which would contract the negative inventories spread by ~0.8 percentage points—a concern for natural gas–weighted stocks.

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