The U.S. Energy Department's weekly inventory release showed a smaller-than-expected decrease in natural gas supplies. As a result, the commodity’s stockpiles still remain plentiful, thereby pressuring prices. The situation has been exacerbated by warm weather forecasts that called for the heating fuel's lower consumption.
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 219 billion cubic feet (Bcf) for the week ended Feb 20, 2015, below the guided range (of 239–243 Bcf draw) as per the analysts surveyed by Platts, the energy information arm of McGraw-Hill Financial Inc. However, the decrease was more than the 5-year (2010–2014) average withdrawal of 131 Bcf for the reported week and was also above last year’s drop of 117 Bcf.
Following the past week’s less-than-expected withdrawal, the current storage level – at 1.94 trillion cubic feet (Tcf) – is up 576 Bcf (42.3%) from last year though it is 30 Bcf (1.5%) below the five-year average.
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 $2.7 per million Btu (MMBtu).
Bearish Pressure on Prices
From a peak of about $13.50 per MMBtu in 2008 to just above $2.7 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. Things were made worse by expectations of soft heating demand with forecasts of higher temperatures across most regions of the U.S. during the next few days.
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 Chesapeake Energy Corp. CHK, Carrizo Oil & Gas Inc. CRZO, Penn Virginia Corp. PVA, Bonanza Creek Energy Inc. BCEI, Cabot Oil & Gas Corp. COG, EOG Resources Inc. EOG look to be in the most trouble.
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