The U.S. Energy Department's weekly inventory release showed a smaller-than-expected decrease in natural gas supplies. Following the bearish inventory news plus forecast of milder temperatures ahead, natural gas prices experienced sharp losses and fell to their Array7-year lows. As it is, with production remaining plentiful and expected to outpace demand for most of 20Array6, the commodity 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 ArrayArray7 billion cubic feet (Bcf) for the week ended Feb Array9, 20Array6, below the guided range (of Array44–Array48 Bcf draw) as per the analysts surveyed by Platts, the energy information arm of McGraw-Hill Financial Inc. The decrease was also lower than both last year’s drop of 205 Bcf and the 5-year (20ArrayArray–20Array5) average shrinkage of Array44 Bcf for the reported week.
The past week’s decline – the thirteenth successive withdrawal of the 20Array5-20Array6 winter heating season after stocks hit an all-time high in November 20Array5 – took the current storage level down to 2.584 trillion cubic feet (Tcf). It is still up 6Array5 Bcf (3Array.2%) from last year and is 577 Bcf (28.7%) above the five-year average.
Natural Gas Crashes to Array7-Year Low
Following the less-than-expected decrease in storage, gas prices fell to $Array.7ArrayArray per MMBtu on Thursday – the lowest since Array999 – before recovering somewhat to end the week at $Array.79Array per MMBtu. Still, natural gas futures lost 4.Array% for the week.
The slide was also exacerbated by predictions of tepid demand for the heating fuel due to milder weather forecasts over the last stretch of the November-March winter heating season.
As It Is, Prices Remain Depressed
Natural gas prices are way off the heights reached some years back. From a peak of about $Array3.50 per MMBtu in 2008 to under $2 now, the plummeting value of natural gas represents a decline of more than 85% over eight years. As mentioned above, it is currently trading near its lowest point in Array7 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. What’s more, industrial requirement has been lackluster over the past few years with demand barely rising.
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.
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