Natural gas inventory figures are important for energy investors
Why natural gas prices showed bullish movements last week (Part 1 of 6)
Natural gas inventories
The U.S. Energy Information Administration (or EIA) reports figures on natural gas inventories weekly. Natural gas is an important fuel worldwide. Its uses span from power generation to plastics.
Natural gas consumption in the U.S. is highly seasonal. It’s consumed the most in the winter, when heating demands are at their highest. Storage levels decline during these months.
The summer months are usually considered the “injection season.” During this time, producers refill natural gas storage levels.
Demand and inventories
Markets monitor inventory levels every week. The markets determine if inventories will reach sufficient levels before the winter season starts. Stronger demand could cause significant shortfalls in injections before the winter starts. This could strain available supplies.
While demand for natural gas is high mostly during winters, hot temperatures during summer months can also cause demand to increase. The demand increases for power station fuel. The power stations provide power for cooling devices like air conditioners.
Inventories and prices
Rising demand limits supplies, especially in the winter. This can increase natural gas prices. This happened last winter when heating demands were at their highest.
Natural gas prices touched $6 million British thermal units (or MMBtu). However, they eased back to levels closer to $4 earlier this year.
Later in this series, we’ll discuss the natural gas price movements last week.
Inventory expectations
If inventories rise more-than-expected, it implies either greater supply or weaker demand than expected. This is bearish for natural gas prices.
However, if the increase in natural gas inventories is less-than-expected, it implies either weaker supply or greater demand than expected. This is bullish for natural gas prices.
Last week, analysts expected inventories to increase by 95 billion cubic feet (or bcf). We’ll discuss actual inventory changes in the next part of the series.
Key stocks and ETFs
Natural gas prices determine the margins for gas producers like Devon Energy (DVN), Southwest Energy (SWN), EQT Corp. (EQT), Cabot Oil and Gas (COG), and EOG Resources (EOG). All of these companies are components of energy exchange-traded funds (or ETFs) like the Energy Select Sector SPDR ETF (or XLE).
Apart from natural gas inventories, Market Realist also covers weekly crude inventory movements. Check out Market Realist’s Energy & Power page to read about last week’s crude inventory movements.
In the next part of the series, we’ll discuss how natural gas inventory moved last week.
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