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Natural Gas: Change in Inventories Could Boost Its Prospects

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Jun. 26 2019, Updated 9:56 a.m. ET

Inventories spread

In the week ending June 14, the inventories spread was -8.3%. During this period, the negative inventories spread contracted by ~1.7 percentage points compared to the previous week. On June 20, the EIA (U.S. Energy Information Administration) reported the natural gas inventory data for the week ending June 14. The inventories spread is the difference between natural gas inventories and their five-year average.

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Since June 20, the natural gas August futures have risen 5.5%. During the same period, natural gas–weighted stocks Antero Resources (AR), Cabot Oil & Gas (COG), and Gulfport Energy (GPOR) fell 1.3%, 2.7%, and 2.7%, respectively, and outperformed their peers. The remaining natural gas–weighted stocks ended in the red. Oil’s influence on these stocks could explain the divergence. Antero Resources, Cabot Oil & Gas, and Gulfport Energy operate with a production mix of ~71%, 100%, and ~90% in natural gas.

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 June 27, the EIA is scheduled to release its natural gas inventory report for the week ending June 21. Any rise less than ~64 billion cubic feet could cause the inventories spread to expand more into the negative territory—a positive development for natural gas prices.

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