The U.S. Energy Department's weekly inventory release showed a smaller-than-expected increase in natural gas supplies. However, the first injection of 2016 has added to the already bloated inventories. Also, spring-like temperatures across the country have restricted the commodity’s requirement for power burn. As a result, despite the bullish inventory news, natural gas prices experienced sharp losses last week.
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: The First Injection of 2016
Stockpiles held in underground storage in the lower 48 states rose by 15 billion cubic feet (Bcf) for the week ended Mar 18, 2016, below the guided range (of 18–22 Bcf gain) as per the analysts surveyed by Platts, the energy information arm of McGraw-Hill Financial Inc. The increase compares with last year’s drop of 4 Bcf and the 5-year (2011–2015) average shrinkage of 24 Bcf for the reported week.
The past week’s climb – the first injection of 2016 – brought the current storage level to 2.493 Tcf. It is up 1,017 Bcf (69%) from last year and is 846 Bcf (51%) above the five-year average.
Natural Gas Tumbles to End 2-Week Winning Streak
Notwithstanding the less-than-expected increase in storage, gas prices plunged 5.3% for the holiday-shortened week to close at $1.806 per MMBtu. The fall could be attributed to predictions of tepid demand for the fuel with spring-like weather expected over most parts of the nation in the upcoming weeks.
Prices Remain Depressed on Bearish Fundamentals
Natural gas prices are way off the heights reached some years back. From a peak of about $13.50 per MMBtu in 2008 to under $2 now, the plummeting value of natural gas represents a decline of 85% over 8 years. In fact, it fell to $1.611 per MMBtu on Mar 4 – the lowest since Aug 1998.
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 and Antero Resources Corp. AR.
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