Natural Gas Inventory Rose Marginally: How Will It Affect Us Coal?
07 Dec 2015
Natural gas inventory
Every Thursday, the EIA (U.S. Energy Information Administration) publishes a natural gas inventory report for the previous week. The latest report is for the week ended November 20, 2015.
Throughout the year, natural gas is stored underground to save fuel for the peak demand during the winter. For the week ended November 20, 2015, the natural gas inventory came in at 4,009 Bcf (billion cubic feet) compared to 4,000 Bcf a week earlier.
The inventory figure was higher than the 3,455 Bcf recorded the year before and the five-year average of 3,757 Bcf. The change of nine Bcf in the underground inventory during the week ended November 20 was marginally higher than the seven Bcf that analysts expected.
Why is the EIA report important?
Commodity prices are a function of supply and demand. If demand rises while supply remains constant, prices rise because more customers are chasing each unit of a commodity.
In contrast, if supply rises for a given level of demand, prices fall because the commodity is available in abundance. Inventory levels reflect supply and demand trends, so they’re useful for getting a sense of natural gas prices.
Impact on coal
Natural gas inventory has risen over the past 30 weeks since the injection season started. A higher-than-expected inventory indicates higher-than-expected supply or lower-than-expected demand. This generally puts pressure on natural gas prices. A drop in natural gas prices is negative for thermal coal producers because utilities (XLU) burn more natural gas when prices fall.
A fall in natural gas prices over the last few months has hurt coal producers (KOL), especially those with operations in the East and Midwest such as Alliance Resource Partners (ARLP), Natural Resource Partners (NRP), Arch Coal (ACI), and Peabody Energy (BTU).
source: http://marketrealist.com