Bottom Fishing Could Lead to a Natural Gas Price Rally
EIA natural gas inventory report
The EIA (U.S. Energy Information Administration) published its weekly natural gas in storage report on February 4, 2016. US natural gas inventories fell 70 Bcf (billion cubic feet) to 2,864 Bcf for the week ended February 5. Inventories fell for the ninth consecutive week due to overproduction, which we covered in the previous part of this series.
Natural gas inventory estimates and impact
Market surveys projected that US natural gas inventories would fall 145 Bcf in the week ended February 5. The worse-than-expected decline was due to mild winter weather in 2015–16 compared to 2014–15. As a result, natural gas fell yesterday. The five-year seasonal withdrawal average for this period of the year is 162 Bcf. At this same time in 2015, US natural gas inventories fell 160 Bcf.
US natural gas inventory by region
The EIA divides the United States’ storage regions into five areas by the EIA:
- South Central
The weekly natural gas inventory fell the most in the Midwest, by 28 Bcf for the week ended February 5. The Eastern and Pacific regions fell 21 Bcf and 13 Bcf, respectively. The current nationwide natural gas inventory is 25% higher than last year’s levels. Record inventories should continue to pressure natural gas prices and gas producers such as Cabot Oil & Gas (COG), Rice Energy (RICE), Devon Energy (DVN), QEP Resources (QEP), and Gulfport Energy (GPOR). These companies’ natural gas production mix is more than 50% of their total natural gas production portfolios.
The ups and down in natural gas prices also influence ETFs and ETNs such as the Guggenheim S&P 500 Equal Weight Energy ETF (RYE), the VelocityShares 3X Long Natural Gas ETN (UGAZ), and the PowerShares DB Energy ETF (DBE).
Read on to the next part of this series to learn more about the latest US natural gas rig count update.
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