Natural Gas ETF Impact On EIA Storage Report

natural-gas-etfCommodity investing has been quite choppy, pretty much across the board. Political gridlock over government funding and the debt ceiling continued to dull the demand for broad natural resources, pushing many commodity ETFs into the red as of late.

In particular, natural gas showed a sharp pullback over the last two week due to the broad commodity trends and natural gas specific concerns such as excess supply and sluggish demand.

Demand/Supply Imbalance

The bearish trend was reflected in the latest EIA storage report – a key mover of the natural gas markets – in which supplies continued to build for the key fuel. Natural gas stockpiles rose 101 billion cubic feet (bcf) in the week ending September 27, a bit higher than the analyst expectation of 95 bcf.

This follows up a weak report from the previous week in which there was a big supply build too. In that time period, natural gas stockpiles rose 87 bcf, far higher than the analyst expectation of 74–78 bcf.

Recent for the Increase

The main reason behind the surge is that mild weather has dampened the demand for electricity at homes and business. Since roughly one-fourth of all U.S. electricity is generated via natural gas, a drop in electricity demand had a huge impact on the usage of this energy source.

This trend is expected to spill over in the weeks ahead as more mild temperatures are expected across the nation. This would prevent cooling demand—and also warming demand– and put pressure on natural gas (read: Natural Gas ETFs Struggle on Cool Weather Forecast).

Generally, demand for natural gas wanes at the end of summer as hot temperatures recede and people use less fuel. On the other hand, natural gas inventories accelerate before winter heating demand kicks in, and we may now be in that part of the calendar year.

Market Impact

The jump in natural gas inventories and the lack of demand affected natural gas ETFs over the past two weeks. And, ETFs tracking this space could see rough trading in the days ahead given the bearish outlook for the natural resource.

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