Crude Oil Rises While Natural Gas Falls, Coal Under Pressure (Part 1 of 4)
Natural gas inventory drops after a slight rise
The EIA (U.S. Energy Information Administration) publishes a weekly natural gas inventory and withdrawal report every Thursday. The latest report is for the week ending April 3.
Throughout the year, natural gas is stored underground and saved for the peak demand period during the winter. For the week ending April 3, natural gas inventory came in at 1,476 Bcf (billion cubic feet) compared with 1,461 Bcf a week earlier. Inventory was marginally higher than Wall Street analysts’ expectation of 1,471 Bcf.
The inventory figure for the week was lower than the five-year average of 1,651 Bcf. However, it remained higher than last year’s 826 Bcf. A severe winter in 2014 caused a rapid inventory drawdown.
Why is inventory important?
Commodity prices are a function of demand and supply. If demand increases while supply remains constant, the prices increase because more customers are chasing each unit of the commodity. In contrast, if supply increases for a given level of demand, prices drop because the commodity is available in abundance. So, natural gas inventory data is useful for getting a handle on natural gas prices.
Impact on coal
A rise in natural gas inventory is pointing toward the end of winter. If inventory is higher or lower than expected, it indicates higher- or lower-than-expected supply, which puts pressure on natural gas prices. Low natural gas prices are negative for thermal coal.
A fall in natural gas prices during the last few months has hurt coal producers (KOL), especially those with operations in the East and Midwest, including Alpha Natural Resources (ANR), Alliance Resource Partners (ARLP), and Natural Resource Partners (NRP).
Utilities (XLU) burn more natural gas when prices are low, taking away coal’s market share in terms of electricity generation.
Continue to Part 2
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