The U.S. Energy Department's weekly inventory release showed an in-line increase in natural gas supplies. But despite the temporary lift from the bullish inventory news, natural gas prices remain weak as production remains plentiful and is expected to outpace demand for most of 2015.
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 rose by 69 billion cubic feet (Bcf) for the week ended Jun 26, 2015, within the guided range (of 68–72 Bcf gain) as per the analysts surveyed by Platts, the energy information arm of McGraw-Hill Financial Inc. However, the increase – the thirteenth successive weekly injection – was less than both last year’s build of 102 Bcf and the 5-year (2010–2014) average addition of 75 Bcf for the reported week.
Following last week’s climb, the current storage level – at 2.577 trillion cubic feet (Tcf) – is up 662 Bcf (34.6%) from last year and is 29 Bcf (1.1%) above the five-year average.
But Prices Remain Depressed
The in-line injection of natural gas into storage – together with predictions of strong summer cooling demand with forecasts of warmer weather across majority of the country over the next few days – did help the commodity post a decent gain on Thursday. In fact, natural gas futures scaled a 5-day peak of $2.88 per million Btu (MMBtu) and ended the day up about 4 cents at $2.82 MMBtu.
Nevertheless, from a peak of about $13.50 per MMBtu in 2008 to below $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. 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 have been held back. Even the summer cooling demand on the back of warm weather has been of little help.
Gas-Weighted Companies to Suffer
The price weakness translates into limited upside for natural gas-weighted companies like Chesapeake Energy Corp. CHK, Range Resources Corp. RRC, QEP Resources Inc. QEP, EOG Resources Inc. EOG and Devon Energy Corp. DVN.
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