Why natural gas inventory figures are key to energy investors
Natural gas prices saw a bullish week: Winter finally on its way? (Part 1 of 6)
Natural gas inventories
The U.S. Energy Information Administration (or EIA) reports natural gas inventory figures every week. Natural gas is an important fuel worldwide. Its uses span from power generation to plastics.
Natural gas consumption in the U.S. is very seasonal. It’s highest in the winter. Heating demand is highest during the winter months. Storage levels decline during these months. The summer months are usually considered the “injection season,” when producers restock natural gas storage levels.
Demand and inventories
Markets monitor inventory levels every week. The markets determine if inventory levels will be high enough before the winter season starts. Stronger demand could cause significant shortfalls in injections before the winter starts. This could strain available supplies.
While natural gas demand is high during winter, hot temperatures during summer can also cause demand to increase. Power stations use more fuel to power cooling devices like air conditioners.
Inventories and prices
There are supply constraints because of rising demand, especially in the winter. This can push natural gas prices up. This is what happened last winter, when heating demand was highest. Natural gas prices reached $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 natural gas price movements last week.
Inventory expectations
If inventories rise more than expected, they imply 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 had expected an inventory gain of 85 billion cubic feet (or bcf). We’ll discuss actual inventory changes in the next part of this series.
Key stocks and ETFs
Natural gas prices determine the margins for gas producers such as Range Resources (RRC), Cabot Oil and Gas (COG), Southwest Energy (SWN), and EQT Corp. (EQT). All of these companies are components of energy ETFs like the Energy Select Sector SPDR ETF (XLE).
Continue to the following part of this series to read about natural gas inventory movements last week.
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