FxWirePro: Fresh blanket of cold brings back focus to gas inventory

As the winter retreats from the Southern hemisphere, fresh waves of chilling temperatures have hit the Northern hemisphere, especially in North America. In the United States, mercury is facing downward pressure again bringing the natural gas inventory back in the focus. Temperatures are expected to remain chilling over the next week, at the very least.

Last week, inventory unexpectedly declined by 243 billion cubic feet after declining by a total of 200 billion cubic feet over the previous two weeks. Traders are expected to watch the inventory report closely to assess if the latest chill impacted inventory by more than expected or not. Today, the inventory is expected to decline by 117 billion cubic feet.

This year, despite lower production compared to the previous years, inventory reached a record high of 4 trillion cubic feet. The inventory currently is at 2.917 trillion cubic feet. If the weekly decline remains well below 200 billion cubic feet, just in line with the expectations, it would prove bearish for the natural gas, which is currently trading at $3.42 per MMBtu.

The level of inventory is simply too high to dissipate this winter, but if the draw stands out to be large enough and the production continues to lurch lower, we are likely to have a longer and stronger bullish environment for the gas in years to come.