The U.S. Energy Department's weekly inventory release showed a larger-than-expected decrease in natural gas supplies. Importantly, the storage draw was higher than the benchmark 5-year average withdrawal for the week. However, the commodity’s stockpiles still remain plentiful, thereby pressuring prices.
About the Weekly Natural Gas Storage Report
The Weekly Natural Gas Storage Report – brought out by the Energy Information Administration (EIA) every Thursday since 2002 – includes updates on natural gas market prices, the latest storage level estimates, recent weather data and other market activities or events.
The report provides an overview of the level of reserves and their movements, thereby helping investors understand the demand/supply dynamics of natural gas. It is an indicator of current gas prices and volatility that affect businesses of natural gas-weighted companies and related support plays.
Analysis of the Data
Stockpiles held in underground storage in the lower 48 states fell by 236 billion cubic feet (Bcf) for the week ended Dec 9, 2015, higher than the guided range (of 224–228 Bcf draw) as per the analysts surveyed by Platts, the energy information arm of McGraw-Hill Financial Inc. The decrease – the ninth successive weekly decline – was also more than the 5-year (2010–2014) average withdrawal of 190 Bcf for the reported week but was below last year’s drop of 268 Bcf.
Despite past week’s withdrawal, the current storage level – at 2.85 trillion cubic feet (Tcf) – is currently up 282 Bcf (11%) from last year though it is 113 Bcf (3.8%) below the five-year average.
Nevertheless, with production from the major shale plays remaining strong and the commodity’s demand failing to keep pace with this supply surge, natural gas prices remain in check, currently around $3 per million Btu (MMBtu). (See More: Natural Gas Drops Below $3 on Record Output, Stocks Suffer.)
Bearish Pressure on Prices
From a peak of about $13.50 per MMBtu in 2008 to around $3 now – sinking in between to a 10-year low of under $2 in 2012 – the plummeting value of natural gas represents a decline of around 80% over seven years. In the absence of major production cuts, we do not expect much upside in gas prices in the near term.
Gas-Weighted Companies to Suffer
This translates into limited upside for natural gas-weighted companies. In particular, those with Zacks Rank #4 (Sell) or Zacks Rank #5 (Strong Sell) like Range Resources Corp. (RRC), Penn Virginia Corp. (PVA), Bonanza Creek Energy Inc. (BCEI), Ultra Petroleum Corp. (UPL), Cabot Oil & Gas Corp. (COG) and Comstock Resources Inc. (CRK) look to be in the most trouble.
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