Natural Gas Stockpile Build Does Not Bode Well For Prices

On Thursday, the Energy Information Administration — EIA — reported data for natural gas stockpiles. The weather has shifted to warmer weather, causing a lot of problems for the natural gas trade.

Increased oil drilling in Texas has really put a damper on gas prices in the region. Despite a build in stockpiles, the price of natural gas closed higher to $3.33 MMBtu.

Stockpiles Data

The EIA reported a build in stockpiles on Thursday. It reported that there was a build in stockpiles of 2 billioncubic feet — bcf — for the week ending March 31. There is one positive and two negative aspects with respect to this data. The positive thing about this data is that it beat analysts’ estimate.

Analysts believed that the stockpiles build would come in at 10 bcf. Anytime there is a beat in data it is seen as being very bullish. The first negative item would be the fact that this was the first build in stockpiles in over five weeks. All the other weeks, the EIA reported a draw in stockpiles.

That is a major problem, because a build means that demand is dropping off. The second negative item would be the huge drop from one week to the other. Just the previous week, there was a drop in natural gas stockpiles by 43 bcf.

Warmer Weather

With April already on deck, natural gas faces a considerable problem. That problem involves warmer weather. April tends to start the warmer season, and that will be a huge issue for the price of natural gas. That all has to do with decreased demand, and increased stockpiles.

For starters, warmer weather causes people to avoid using their heaters. With less consumption of natural gas due to heater avoidance, the price of natural gas takes a turn for the worse. The forecast for the next twoweeks is a spring like season. That means that temperatures will remain warmer during this period. In addition, this causes demand to go away. With demand dropping off, stockpiles start to build up at a quicker rate.

All the excess stockpiles is another boon for prices. The change in weather can be observed in the last two stockpiles reports from the EIA. The prior report, that saw a drop in stockpiles by 43 bcf, was the final week of the winter season. As soon as April hit, stockpiles showed an increase of 2 bcf.

This was because of warmer weather. It was reported that the midwest and northeast averaged a higher warmer temperature between 7.3 degrees and 10.3 degrees. This is what scaled back the use of heaters in the opening month of April.

Increased Production

There is one major obstacle for the price of natural gas. That involves the issue of increased shale drilling in the United States. With increased drilling going on, there are more amounts of gas being produced.

One of the main centers for increased shale production is a facility located in Texas known as the Permian Basin. According to the EIA, shale production and natural gas production have climbed by 14% in the Permian Basin facility. That rise is counterproductive to seeing an increase in the price of natural gas. As long the production there continues to climb, it will be very difficult to see prices recover.

What Binary Options Traders Should Watch For

There are a few things traders should watch.

The first of which is the next round of stockpiles data. The next batch of data will be released by the EIA in one week. Considering that Winter is just about over, the following reports will not be as good as prior ones.

The second item would be the weather. With the forecasted weather expected to be warmer, demand will likely drop off. That means that the price of natural gas will have nowhere to trade but down.

The final item that traders should keep an eye on would be increased shale production. Increased shale production means a massive bump in natural gas production as well. That is because they both go hand in hand. In that case, it will be very difficult for the price of natural gas to trade out of its $3.00 MMBtu range.