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Natural Gas Inventories Rise as Injection Season Continues

The Week of June 19 Boosted Coal Producers and Utilities

Natural gas inventory rises

The EIA publishes a weekly natural gas inventory and withdrawal report every Thursday for the preceding week. The latest report is for the week ended June 12.

Throughout the year, natural gas is stored underground in order to save the fuel for the peak demand during the winter. For the week ended June 12, the inventory came in at 2,433 billion cubic feet (or Bcf) compared to 2,344 Bcf a week earlier. This implies an addition of 89 bcf during the week.

The inventory figure for the week was also higher than the five-year average of 2,387 bcf as well as last year’s 1,703 bcf.

Why it this report important?

Commodity prices are a function of demand and supply. If demand increases while supply remains constant, prices increase because more customers are chasing each unit of a commodity. In contrast, if supply increases for a given level of demand, prices drop because the commodity is available in abundance. So natural gas inventory data is useful in getting a sense of natural gas prices.

Impact on coal

The natural gas inventory has risen over the past few weeks as the injection season has started. If the inventory is higher than expected, it indicates higher-than-expected supply, pressuring natural gas prices. Weak natural gas prices are negative for thermal coal. Utilities (XLU) burn more natural gas when prices are low, taking away the market share in electricity generation from coal.

The fall in natural gas prices over the last few months has hurt coal producers (KOL), especially those with operations in the east and midwest—including Alliance Resource Partners (ARLP), Natural Resource Partners (NRP), and Peabody Energy (BTU).

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