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Supply Glut, Mild Weather Keeps Natural Gas Prices Low

The U.S. Energy Department's weekly inventory release showed a modest decrease in natural gas supplies. But nearing 2.5 trillion cubic feet (Tcf), it’s still 52% above the 5-year average. Also, spring-like temperatures across the country have restricted the commodity’s requirement for power burn. As a result, despite the slight decline in stocks, natural gas prices experienced sharp losses last week.

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: Inventories Edge Lower

Stockpiles held in underground storage in the lower 48 states fell by 3 billion cubic feet (Bcf) for the week ended Apr 8, 2016, as compared to the guided range (of 1 Bcf draw – 3 Bcf gain) as per the analysts surveyed by Platts, the energy information arm of McGraw-Hill Financial Inc. The decrease contrasts with last year’s addition of 49 Bcf and the 5-year (2011–2015) average injection of 22 Bcf for the reported week.

The past week’s decline took the current storage level down to 2.477 Tcf. It is still up 956 Bcf (63%) from last year and is 849 Bcf (52%) above the five-year average.

Natural Gas Registers Weekly Loss

Despite the small decrease in storage, gas prices lost 4.4% for the week to close at $1.902 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.

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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