Record Inventory Continues to Pressure Natural Gas Prices
Bearish Catalyst Could Weigh on Natural Gas Market
Natural gas inventory
On November 25, 2015, the EIA (U.S. Energy Information Administration) released its weekly US commercial natural gas in storage report. The data showed that natural gas stocks rose by 9 Bcf (billion cubic feet) to 4,009 Bcf, or 4.9 Tcf (trillion cubic feet), for the week ended November 20, 2015. This is a record size for US natural gas inventories. US natural gas stocks rose, for the 34 th consecutive week, due to rising natural gas production and a mild winter.
Natural gas inventory estimates
Bloomberg surveys projected that the natural gas inventory could rise by 7 Bcf for the week ended November 20, 2015. Unexpectedly, the larger-than-expected inventory didn’t have much of an impact on natural gas prices. Current natural gas inventories are 16% higher than last year’s level of 3,455 Bcf. They are also 6.7% higher than the five-year average of 3,757 Bcf. The EIA has divided the natural gas storage hubs in the United States into five regions—East, Midwest, Mountain, Pacific and South Central. The Midwest and South Central regions contributed to the rise in the natural gas inventory. These regions’ inventories rose by 5 Bcf and 3 Bcf, respectively, for the week ended November 20, 2015.
Impact
Weak demand due to a mild winter and a record inventory will weigh on natural gas prices. The record low natural gas prices benefit US households and power plants. However, they negatively impact US gas producers such as Rice Energy (RICE), Cabot Oil & Gas (COG), Newfield Exploration (NFX), and Range Resources (RRC). Volatility in the oil and gas market also impacts ETFs such as the PowerShares DB Energy ETF (DBE) and the PowerShares DWA Energy Momentum ETF (PXI).
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