The U.S. Energy Department's weekly inventory release showed a
larger-than-expected rise in natural gas supplies on account of
weak demand. On a further bearish note, the storage build was
bigger than the benchmark 5-year average gain for the
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
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
rose by 67 billion cubic feet (Bcf) for the week ended Aug 23,
2013, higher than the guided range (of 61-65 Bcf gain) as per the
analysts surveyed by Platts, the energy information arm of
McGraw-Hill Financial Inc.
). The increase - the twentieth injection of 2013 - also exceeded
both last year's build of 64 Bcf and the 5-year (2008-2012)
average addition of 66 Bcf for the reported week.
Following past week's build, the current storage level - at 3.130
trillion cubic feet (Tcf) - is now 45 Bcf (1.5%) above the 5-year
average. However, supplies are still down 235 Bcf (7.0%) from the
last year's level.
Natural gas stocks hit an all-time high of 3.929 Tcf in 2012, as
production from dense rock formations (shale) - through novel
techniques of horizontal drilling and hydraulic fracturing -
remained robust. In fact, the oversupply of natural gas pushed
down prices to a 10-year low of $1.82 per million Btu (MMBtu)
during late Apr 2012 (referring to spot prices at the Henry Hub,
the benchmark supply point in Louisiana).
However, things started to look up in 2013. This year, cold
winter weather across most parts of the country boosted natural
gas demand for space heating by residential/commercial consumers.
This, coupled with flat production volumes, meant that the
inventory overhang was gone, thereby driving commodity prices to
around $4.40 per MMBtu in Apr - the highest in 21 months.
During the last few weeks, though, natural gas demand has gone
through a relatively lean period, as mild weather - from July
through mid-August - prevailed over the country, leading to tepid
electricity draws to run air conditioners. This has led to a
slide in the commodity's price. In fact, healthy injections over
last few weeks, plus strong production have meant that supplies
have overturned the deficit over the five-year average for the
first time since late March.
With more moderate weather expected during the next few weeks,
leading to reduced power demand, natural gas price may experience
another downward curve. This, in turn, is expected to pull down
natural gas producers, particularly small ones.
Considering the turbulent market dynamics of the natural gas
industry, we advocate big, relatively low-risk names like
Exxon Mobil Corp.
Chesapeake Energy Corp.
) - both Zacks Rank #3 (Hold) stocks.
However, one company that stands out is
Range Resources Corp.
). This Zacks Rank #1 (Strong Buy) independent natural gas
producer has been one of the better performing S&P stocks
since the start of 2013, gaining 20% during the period. Most of
the gains have been driven by its exposure to the high-return
Marcellus Shale play, as well as the company's above-average
CHESAPEAKE ENGY (CHK): Free Stock Analysis
MCGRAW HILL FIN (MHFI): Free Stock Analysis
RANGE RESOURCES (RRC): Free Stock Analysis
EXXON MOBIL CRP (XOM): Free Stock Analysis
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