How Rising Inventory and Flat Prices Affected Natural Gas Market
Natural gas inventory data
The EIA (U.S. Energy Information Administration) is expected to publish the US commercial natural gas stocks report on October 8, 2015. Natural gas inventories rose by 98 Bcf (billion cubic feet) to 3,538 Bcf in the week ending September 25, which was the 26th straight week of increases. Natural gas stocks rose due to increasing production and slowing demand.
Natural gas inventory estimates and impact
Surveys from Bloomberg and Reuters suggest that natural gas stock could have increased by 99 Bcf for the week ending October 2, 2015. Mild weather and rising natural gas production could have led to the increase in natural gas inventory. The estimates of rising inventory will put downward pressure on natural gas prices.
The current natural gas stocks are 14.7% greater than the 3,084 Bcf in 2014. It’s also 4.5% higher than the five-year average of 3,386 Bcf. The consensus of rising inventory and record natural gas stocks will negatively influence natural gas prices in the short term. But why are natural gas supplies improving despite lower long-term natural gas prices? The key factor is the improving efficiency and lower drilling costs of oil and gas drillers.
The oversupplied market and lower natural gas prices will negatively impact upstream players like Gulfport Energy (GPOR), Memorial Resource Development (MRD), and EQT (EQT). These stocks account for 4.4% of the SPDR Oil and Gas ETF (XOP). These companies’ natural gas production mix is greater than 43% of their production portfolio. Oil and gas ETFs like the Oil & Gas Equipment & Services ETF (XES) and the PowerShares DB Energy Fund (DBE) have also been impacted by the volatility in natural gas prices.
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