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Natural Gas Gains Ground but Remains Under $2

The U.S. Energy Department's weekly inventory release showed that the increase in natural gas supplies were in line with expectations. This, together with favorable weather forecasts, helped the commodity continue its rebound off 17-year lows.

However, the latest injection has added to the already bloated inventories. Nearing 2.5 trillion cubic feet (Tcf), natural gas inventories are 54% above the 5-year average. As a result, prices are down significantly from the 2008 highs. With production remaining plentiful and expected to outpace demand for most of 2016, 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: In-Line Injection

Stockpiles held in underground storage in the lower 48 states rose by 12 billion cubic feet (Bcf) for the week ended Apr 1, 2016, smack in the middle of the guided range (of 10–14 Bcf gain) as per the analysts surveyed by Platts, the energy information arm of McGraw-Hill Financial Inc. The increase – though lower than last year’s addition of 49 Bcf – was in contrast to the 5-year (2011–2015) average shrinkage of 15 Bcf for the reported week.

The past week’s climb – the second injection of 2016 – brought the current storage level to 2.480 Tcf. It is up 1,008 Bcf (68%) from last year and is 874 Bcf (54%) above the five-year average.

Natural Gas Registers Weekly Gain

Following the as-expected increase in storage, gas prices rallied 1.8% for the week to close at $1.990 per MMBtu. The commodity continues to recover after falling to $1.611 per MMBtu on Mar 4 - the lowest since Aug 1998. The uptick was also driven by predictions of solid demand for the fuel with cool weather expected through the end of this month.

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.

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, EQT Corp. EQT, 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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SOUTHWESTRN ENE (SWN): Free Stock Analysis Report
EQT CORP (EQT): Free Stock Analysis Report
RANGE RESOURCES (RRC): Free Stock Analysis Report
CABOT OIL & GAS (COG): Free Stock Analysis Report
CIMAREX ENERGY (XEC): Free Stock Analysis Report
ANTERO RESOURCE (AR): Free Stock Analysis Report
RICE ENERGY INC (RICE): Free Stock Analysis Report
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