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Why inventory figures for natural gas were neutral

Ingrid Pan, CFA

How inventory figures affected crude prices (Part 2 of 2)

(Continued from Part 1)

The weekly natural gas storage report affects natural gas prices

Every week, the Energy Information Administration (“EIA”) releases data on how much natural gas is stored in facilities across the United States. These figures, also called “natural gas inventories,” can affect U.S. natural gas prices and therefore the valuation of natural gas producers. A larger-than-expected decrease, or “draw,” in inventories can reflect greater demand or less supply (or both) and is a positive for natural gas prices (and vice versa for a smaller-than-expected decrease). A larger-than-expected increase, or “build,” in inventories can reflect less demand or greater supply, which is a negative for natural gas prices. Natural gas prices affect the earnings and valuation of domestic natural gas producers such as Chesapeake Energy (CHK), Quicksilver Resources (KWK), Southwestern Energy (SWN), and Range Resources (RRC).


Reported inventory draw was the same as expected

On December 27, the EIA reported that natural gas inventories decreased 177 bcf (billion cubic feet) for the week ended December 20, bringing current inventories to 3,071 bcf. A survey of experts estimated the draw in inventories to be 177 bcf. This is a neutral indicator for natural gas prices, as it implies the same gas demand and supply as analysts expected. Natural gas prices were roughly flat on the day, closing at $4.41 per MMBtu, compared to the prior day’s close of $4.43 per MMBtu.

This week’s natural gas inventory draw the same as consensus estimates, resulting in a neutral movement in the future

Investors who are long (that is, who own shares in) natural gas through an ETF (exchange-traded fund) such as the U.S. Natural Gas Fund (UNG) or natural gas producers such as Chesapeake Energy (CHK), Southwestern Energy (SWN), and Quicksilver Resources (KWK) should monitor inventory draws and builds because they’re significant data points in the national supply and demand picture of natural gas. The supply and demand dynamics of the commodity affect its price and therefore also the margins of companies that produce natural gas. This week’s same-as-expected inventories data will have a neutral effect on the companies’ valuation for the following period.

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