How Long Will Record Inventories Drive Natural Gas Prices?
Crude Oil and Natural Gas Market: Consensus of Improving Demand
EIA’s stockpile report
On June 11, 2015, the EIA (U.S. Energy Information Administration) released its weekly natural gas stockpile report. Weekly gas inventories increased by 111 Bcf (billion cubic feet) to 2,344 for the week ending June 5, 2015—compared to an inventory increase of 132 Bcf to 2,233 Bcf for the week ending May 29, 2015.
A Wall Street Journal survey suggested that the stockpile could increase by 111 Bcf for the week ending June 5, 2015. Mild weather led to an increase in the natural gas inventory. The current stockpile is 43.7% above the level of 1,591 Bcf last year. It’s also 2% more than five-year average stockpile of 2,300 Bcf.
Record inventories imply that supply is increasing and demand is slowing down. Weather forecasting agencies have reported that hotter weather is expected in the second half of June 2015. This could spike the demand for natural gas. The inventory could draw down and support natural gas prices. Gas price spikes, related to the weather, are short term in nature. The forces of supply and demand balance natural gas prices over the long term.
Energy producers like Antero Resources (AR), Chevron (CVX), and Rex Energy (REXX) are impacted by the volatility in natural gas prices. These stocks have a natural gas production mix that’s more than 45% of their production portfolio. Combined, they account for 3.89% of the Spider Oil and Gas ETF (XOP). ETFs like the Energy Select Sector SPDR ETF (XLE) and XOP are also impacted by fluctuating natural gas prices.
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