Supply and Demand Imbalance: Natural Gas Prices Are Pressured
Natural Gas Prices Declined for the Third Day: What’s Next? (Part 2 of 3)
EIA inventory report
The EIA (U.S. Energy Information Administration) published the weekly natural gas report on May 7, 2015. Weekly natural gas inventories increased by 76 Bcf (billion cubic feet) to 1,786 Bcf from 1,710 Bcf for the week ending May 1. A Bloomberg survey suggested an increase in inventory by 74 Bcf.
Last year, natural gas inventories were at 1,044 Bcf. The current inventories are 70% more than these levels. However, the current inventories are 3.6% below the five-year average of 1,853 Bcf. The next report will release on May 11, 2015. The better-than-expected inventory increase implies more supply or slowing demand.
Demand drivers
Production continues to outpace demand in the natural gas price market. Natural gas production from dry well and wellhead production continues to increase week-over-week. However, natural gas in storage declined in the lower 48 states of the US by 20% week-over-week.
Gas flows to the residential, commercial, and industrial segments continued to decline from the previous day. As usual, demand from electrical power plants continued to be the key driver of natural gas for the week.
Oil and gas ETFs like the Energy Select Sector SPDR ETF (XLE) and the Spider Oil and Gas ETF (XOP) followed the price movement of US benchmark natural gas prices yesterday. They fell by 1% and 2.4%, respectively, at the close of trade. In contrast, the S&P 500 gained yesterday.
Lower natural gas prices impact energy companies like Stone Energy (SGY), Memorial Resource (MRD), and Parsley Energy (PE). These companies have a natural gas production mix that’s greater than 45% of their production portfolio. They account for 3.98% of XOP.
Browse this series on Market Realist:
