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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

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  • Chiou-Wei, Song-Zan
  • Linn, Scott C.
  • Zhu, Zhen

Abstract

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.

Suggested Citation

  • Chiou-Wei, Song-Zan & Linn, Scott C. & Zhu, Zhen, 2014. "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," Journal of International Money and Finance, Elsevier, vol. 42(C), pages 156-173.
  • Handle: RePEc:eee:jimfin:v:42:y:2014:i:c:p:156-173
    DOI: 10.1016/j.jimonfin.2013.08.009
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    Citations

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    Cited by:

    1. Geng, Jiang-Bo & Ji, Qiang & Fan, Ying, 2016. "The behaviour mechanism analysis of regional natural gas prices: A multi-scale perspective," Energy, Elsevier, vol. 101(C), pages 266-277.
    2. Olivier Rousse & Benoît Sévi, 2016. "Informed Trading in Oil-Futures Market," Working Papers hal-01410093, HAL.
    3. repec:eco:journ2:2017-04-04 is not listed on IDEAS
    4. repec:eee:eneeco:v:67:y:2017:i:c:p:98-110 is not listed on IDEAS
    5. Ergen, Ibrahim & Rizvanoghlu, Islam, 2016. "Asymmetric impacts of fundamentals on the natural gas futures volatility: An augmented GARCH approach," Energy Economics, Elsevier, vol. 56(C), pages 64-74.
    6. repec:eee:eneeco:v:66:y:2017:i:c:p:54-68 is not listed on IDEAS
    7. Kuruppuarachchi, Duminda & Premachandra, I.M., 2016. "Information spillover dynamics of the energy futures market sector: A novel common factor approach," Energy Economics, Elsevier, vol. 57(C), pages 277-294.
    8. Nicolas Merener, 2016. "Concentrated Production and Conditional Heavy Tails in Commodity Returns," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 36(1), pages 46-65, January.

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