The U.S. Energy Department's weekly inventory release showed a larger-than-expected increase in natural gas supplies following which prices slid. With stocks at a new all-time high, the fuel is likely to stay depressed for a while.
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 9 billion cubic feet (Bcf) for the week ended Nov 20, 2015, above the guided range (of 4–8 Bcf gain) as per the analysts surveyed by Platts, the energy information arm of McGraw-Hill Financial Inc.
Following the past week’s climb, the current storage level – at 4.009 trillion cubic feet (Tcf) – is up 554 Bcf (16%) from last year and is 252 Bcf (6.7%) above the five-year average. Moreover, with this addition, natural gas inventories hit new record, getting past the previous highest level of 4 Tcf set previous week.
Natural Gas Tumbles After Supply Data
Gas prices skidded 7.8% to end the week at $2.21 per MMBtu Friday in a selloff spurred partly by the more-than-expected injection into storage. Traders were also stumped by predictions of tepid early-winter demand for the heating fuel due to mild weather.
Prices Likely Remain Depressed
Natural gas prices are way off the heights reached some years back. From a peak of about $13.50 per MMBtu in 2008 to around $2.20 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.
Industrial requirement has been lackluster over the past few years with demand barely rising. What’s more, natural gas demand by residential and commercial users has been weaker-than-expected over the past few weeks due to soft temperatures.
In the past, winter weather has played a factor in boosting prices with demand for domestic natural gas exceeding available supply. But with no dearth of new supply, even this association is becoming more and more obsolete.
The price weakness translates into limited upside for natural gas-weighted companies including the likes of Range Resources Corp. RRC, Southwestern Energy Co. SWN, Cabot Oil & Gas Corp. COG, Rice Energy Inc. RICE, Cimarex Energy Co. XEC and Eclipse Resources Corp. ECR. Each of them carry a Zacks Rank #3 (Hold), which means that investors should rather wait for a better entry point before accumulating shares of these companies.
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