Why oil prices fell as natural gas bounced from an 8-month low (Part 6 of 7)
The weekly natural gas storage report affects natural gas prices
Every week, the U.S. Energy Information Administration (or EIA) reports figures on natural gas inventories, or the amount of natural gas stored in facilities across the U.S.
The markets monitor these figures because inventory data can indicate supply and demand trends. If the increase in natural gas inventories is more than expected, it implies either greater supply or weaker demand and is bearish for natural gas prices. If the increase in natural gas inventories is less than expected, it implies either weaker supply or greater demand and is bullish for natural gas prices.
Natural gas prices directly affect earnings for gas-weighted producers like Chesapeake Energy (CHK), EQT Corp. (EQT), Southwestern Energy (SWN), and Range Resources (RRC)—many of which are components of energy ETFs like the SPDR S&P Oil & Gas Exploration & Production ETF (XOP).
Background: The seasonality of natural gas inventories
Natural gas use is highest in the winter, when the fuel is needed for heating homes. So, natural gas storage levels start decreasing in late October or early November, when the winter heating season begins. U.S. natural gas storage levels generally decrease until late March or early April, when the weather starts to warm up again.
Natural gas storage levels generally increase again through the fall. The summer also sees some increased use in natural gas because the fuel is used to generate electricity. Natural gas use can increase during periods of hot temperatures because electricity is used for power cooling devices like air conditioners. During the summer, natural gas inventories generally increase, although at a slower pace than during the “shoulder seasons” during the spring and fall.
Natural gas prices and inventories
Read on to the next part of this series to see how natural gas prices reacted to the rise in inventories.
Browse this series on Market Realist:
- Part 1 - Why energy investors must closely track crude oil inventories
- Part 2 - Why crude oil prices dropped despite falling inventories
- Part 3 - Overview: Important gasoline and diesel demand trends
- Commodity Markets
- Oil, Gas, & Consumable Fuels
- natural gas prices
- natural gas
- natural gas storage