OK… This Just Isn’t Adding Up!?

| April 21, 2014 | 0 Comments

natural gas containerNatural gas investors received quite a surprise last Thursday.  The US Energy Information Adminstration’s (EIA) weekly inventory report revealed 24 billion cubic feet (bcf) of gas went into storage for the week of April 11th

That’s nearly 50% lower than the consensus analyst estimate of 40bcf going into the report. 

Upon hearing the news, investors piled on the long side of natural gas.

Take a look…

Natural Gas

As you can see, bulls took firm control of this market last Thursday.  The commodity surged to $4.75 mmBtu- the highest price since late February. 

Why did investors react so bullishly to Thursday’s inventory report?

It’s simple.  There’s not enough gas going into US storage caverns.  While it’s true the past two weeks have provided the first storage additions of 2014, both EIA inventory reports missed analysts’ expectations by a mile. 

And with US natural gas inventories sitting at 11-year lows, that’s not a good sign.

Let me show you what I mean…

Nat Gas Storage

As this EIA storage chart clearly shows, current inventories (blue line) are far below the normal range for this time of year.  In fact, gas in storage is 50% below last year and 54.3% below the five-year average (gray shaded area).  Of course, the current supply situation is due to this year’s exceptionally cold winter in the Midwestern and Eastern US.

No doubt about it, gas producers have their work cut out for them…

To get US storage levels back to acceptable levels by the next heating season, suppliers will need to add around 2.5 trillion cubic feet to the US storage system in coming months. 

According to the EIA, this will likely be the largest natural gas injection season in history. 

Given the abundance of gas in the US, the EIA believes it shouldn’t be a problem to add that much gas back into the storage system. 

However, judging by the surprising weakness in the first two inventory builds of the year, such a spectacular achievement may not be as easy as the EIA thinks.

Especially if Mother Nature throws us a weather curveball…

As you may remember, above average heat baked the Midwest in the Summer of 2012.  In response to extraordinary consumer cooling demand, investors sent natural gas to multi-year highs by Fall. 

If this summer turns out to be another hot one, we may see a similar scenario.  

Gas that’s meant to shore up heavily depleted US inventories may get burned off instead.  Such a situation would leave the US undersupplied going into the winter of 2014/2015.

Folks, natural gas is one commodity you need to keep a close eye on this summer…

Stay tuned to Commodity Trading Research for continued updates on the US natural gas supply situation!

Until Next Time,

Justin Bennett

Tags: , , , , , , , ,

Category: Natural Gas

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.