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Natural Gas Ticks Lower Despite Small Inventory Addition

The U.S. Energy Department's weekly inventory release showed a smaller-than-expected increase in natural gas supplies. However, the latest injection has added to the already bloated inventories. Also, mild 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 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: A Smaller-than-Expected Injection

Stockpiles held in underground storage in the lower 48 states rose by 73 billion cubic feet (Bcf) for the week ended May 13, 2016, below the guidance (of 79 Bcf gain) as per the analysts surveyed by S&P Global Platts, a leading independent commodities and energy data provider. Moreover, the increase was lower than both last year’s build of 98 Bcf and the 5-year (2011–2015) average addition of 91 Bcf for the reported week.

But in spite of past week’s bullish numbers, the current storage level – at 2.754 trillion cubic feet (Tcf) – is still up 791 Bcf (40%) from last year and is sitting 795 Bcf (41%) above the five-year average.

Natural Gas Prices Edged Down Last Week

Natural gas prices ended Friday at $2.062 per MMBtu, 1.6% lower from last week as an encouraging inventory report was more than offset by predictions of mild weather amid lingering oversupply concerns. The commodity, though, has rebounded around 30% since hitting 17-year lows of around $1.6 per MMBtu in the first quarter. This has boosted shares of natural gas companies like Devon Energy Corp. DVN and Range Resources Corp. RRC, which have popped up more than 60% over the past 3 months.

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 just over $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. Also, the past winter – being unseasonably warmer-than-normal – hampered the heating fuel’s demand and keeping inventories at high level.

The price weakness translates into limited upside for natural gas-weighted companies including the likes of Cimarex Energy Co. XEC, EQT Corp. EQT, Southwestern Energy Co. SWN, Cabot Oil & Gas Corp. COG and Williams Companies Inc. WMB.

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SOUTHWESTRN ENE (SWN): Free Stock Analysis Report
 
EQT CORP (EQT): Free Stock Analysis Report
 
WILLIAMS COS (WMB): Free Stock Analysis Report
 
DEVON ENERGY (DVN): 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
 
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