The response of U.S. natural gas futures and spot prices to storage change surprises: Fundamental information and the effect of escalating physical gas production

We study the behavior of U.S. natural gas futures and spot prices on and around the weekly announcements by the U.S. Energy Information Administration of the amount of natural gas in storage. We identify an inverse empirical relation between changes in futures prices and surprises in the change in n...

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Bibliographic Details
Published in:Journal of international money and finance 2014-04, Vol.42, p.156-173
Main Authors: Chiou-Wei, Song-Zan, Linn, Scott C., Zhu, Zhen
Format: Article
Language:English
Subjects:
Empirical research
Energy resources
Experimental methods
Futures
Futures market
Investment analysis
Natural gas
Natural gas prices
Natural gas reserves
Personal finance
Price response
Production capacity
Securities prices
Storage news
Studies
U.S.A
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Summary:We study the behavior of U.S. natural gas futures and spot prices on and around the weekly announcements by the U.S. Energy Information Administration of the amount of natural gas in storage. We identify an inverse empirical relation between changes in futures prices and surprises in the change in natural gas in storage and that this relation is not driven by the absolute size of the surprise. The evidence also indicates prices react first in the futures market for natural gas with that information then flowing to the spot market. Post 2005, corresponding to a period of significant increases in the production of natural gas in the United States, the response of prices to storage surprises was larger in absolute value. No evidence is found of economically meaningful reactions to the surprise other than on the date the storage news is released. The results demonstrate the importance of fundamental information in the formation of natural gas prices.
ISSN:0261-5606
1873-0639
DOI:10.1016/j.jimonfin.2013.08.009