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Will Weakness in Natural Gas Continue Next Week?

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Natural gas dragged energy stocks

On May 30, natural gas July futures fell 2.9% to $2.547 per MMBtu (million British thermal units). Inventory data could be behind the fall in natural gas prices.

On the same day, Southwestern Energy (SWN), Antero Resources (AR), and Gulfport Energy (GPOR) fell 6.5%, 6%, and 5.6%, respectively, and were underperformers among natural-gas-weighted stocks. Moreover, a fall of 3.8% in US crude oil prices might have intensified the falls in these natural-gas-weighted stocks.

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Inventory data

At 3:02 AM EST on May 31, natural gas active futures were up 0.5%. If prices stay at these levels for the rest of the day, natural gas active futures will end up with a ~1.5% weekly decline. On May 30, the US Energy Information Administration reported a rise of 114 Bcf (billion cubic feet) in natural gas inventories, 13 Bcf more than analysts’ expectations.

With this rise, the negative inventories spread contracted by 1.4 percentage points, a negative development for natural gas prices. The inventories spread is the difference between natural gas inventories and their five-year average. The graph above shows the inverse relationship between natural gas prices and the inventories spread. However, on May 31, the EIA will release its monthly natural gas production report. With the fall in the oil rig count in recent months, the EIA might report the third monthly decline in natural gas prices in a row, which might support natural gas prices.

 

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