The U.S. Energy Department's weekly inventory release showed a larger-than-expected decrease in natural gas supplies. Following the bullish inventory news, plus forecasts for colder temperatures ahead, natural gas prices experienced sharp gains.
Despite the boost, the commodity is still languishing near its lowest level in years, ending 2015 down 19%. With production remaining plentiful and expected to outpace demand for most of 2016, natural gas 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 fell by 113 billion cubic feet (Bcf) for the week ended Jan 1, 2016, above the guided range (of 93–97 Bcf draw) as per the analysts surveyed by Platts, the energy information arm of McGraw-Hill Financial Inc.
The past week’s decline represents the sixth successive withdrawal of the 2015-2016 winter heating season after stocks hit an all-time high in November 2015. But the current storage level – at 3.643 trillion cubic feet (Tcf) – is still up 535 Bcf (17.2%) from last year and is 464 Bcf (14.6%) above the five-year average.
Natural Gas Gains Big
Following the more-than-expected decrease in storage, gas prices soared 6% for the week to close at $2.472 per MMBtu on Friday. The rally was also helped by predictions of strong demand for the heating fuel due to cooler weather forecasts over the next few days.
Still, Prices 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 just under $2.5 now, the plummeting value of natural gas represents a decline of around 80% over eight years. In fact, it fell to its lowest point in almost 17 years in December.
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 recent past 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, Comstock Resources Inc. CRK and Ultra Petroleum Corp. UPL.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment