Crude oil swings to 6-month lows and natural gas is unpredictable (Part 6 of 7)
Natural gas inventory figures
The U.S. Energy Information Administration (or EIA) reports figures on natural gas inventories on a weekly basis. Markets monitor these figures because inventory data can indicate supply and demand trends.
If the increase in natural gas inventories is greater-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 of gas-weighted producers such as Chesapeake Energy (CHK), Cabot Oil and Gas (COG), Anadarko (APC), and Devon Energy (DVN)—many of which are components of energy exchange-traded funds (or ETFs) such as the Energy Select Sector SPDR ETF (XLE).
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 use of natural gas can increase during periods of hot temperatures because electricity is used for power cooling devices such as air conditioners. During the summer, natural gas inventories generally increase, although at a slower rate than during the “shoulder seasons” during the spring and fall.
This summer, forecasts for a cooler than usual summer have been driving prices lower. Indeed, a forecast for warmer weather last week actually drove prices up from an eight-month low.
The next section in the series discusses the changes in natural gas inventories last week and their effect on natural gas prices.
Browse this series on Market Realist:
- Part 1 - Why energy company investors should watch crude inventory levels
- Part 2 - Why West Texas Intermediate crude oil slumps to a 6-month low
- Part 3 - Must-know: Why gasoline and distillates see outsized draws
- Oil, Gas, & Consumable Fuels
- Commodity Markets
- natural gas prices
- natural gas