The U.S. Energy Department's weekly inventory release showed a
slightly smaller-than-expected increase in natural gas supplies,
reflecting the commodity's brisk use for power generation.
Despite the relatively soft (and below estimate) supply build,
the latest injection - the sixteenth in 2012 - has added to already
bloated inventories. Gas stocks - currently some 23% above the
benchmark levels - are at their highest point for this time of the
year, reflecting low demand amid robust onshore output. This has
constantly pressured spot prices that slipped to a 10-year low in
April.
While natural gas inventories are no doubt still at elevated
levels, injections since late April have been significantly lower
than the average for this time, cutting the surplus relative to
last year and the five-year average.
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 like
Anadarko Petroleum Corporation
(
APC
),
Chesapeake Energy
(
CHK
),
Encana Corporation
(
ECA
),
Devon Energy Corporation
(
DVN
),
Nabors Industries
(
NBR
),
Patterson-UTI Energy
(
PTEN
),
Helmerich & Payne
(
HP
) and
Halliburton Company
(
HAL
).
Analysis of the Data
Stockpiles held in underground storage in the lower 48 states
rose by 39 billion cubic feet (Bcf) for the week ended June 29,
2012, just short of the guidance range (of 41-45 Bcf gain) as per
the analysts surveyed by Platts, the energy information arm of
McGraw-Hill Companies Inc
(
MHP
).
The increase was also lower than both last year's build of 90
Bcf and the 5-year (2007-2011) average addition of 79 Bcf for the
reported week, thereby trimming the surplus relative to the
benchmarks.
But in spite of the 'below-average' build during the past week,
the current storage level - at 3.102 trillion cubic feet (Tcf) - is
still up 602 Bcf (24.1%) from last year and 573 Bcf (22.7%) over
the five-year average.
Due to this huge natural gas surplus, inventories in underground
storage started to climb since March - weeks earlier than the usual
summer stock-building season of April through October. They have
persistently exceeded the five-year average since late September
last year and are likely to test the nation's underground storage
facilities by fall. In fact, the EIA foresees natural gas storage
at record highs of 4.02 Tcf by October end.
A supply glut has pressured natural gas prices during the past
year or so, as production from dense rock formations (shale) -
through novel techniques of horizontal drilling and hydraulic
fracturing - remain robust, thereby overwhelming demand.
To make matters worse, near-record mild winter weather across
most of the country curbed natural gas demand for heating, leading
to an early beginning for the stock-building season. The grossly
oversupplied market continues to pressure commodity prices in the
backdrop of sustained strong production.
This prompted natural gas prices to drop approximately 63% from
2011 peak of $4.92 per million Btu (MMBtu) in June to a 10-year low
of $1.82 during late April 2012 (referring to spot prices at the
Henry Hub, the benchmark supply point in Louisiana).
However, in the recent past (since the week ended April 27 to be
precise), repeated smaller-than-average storage builds have rallied
back prices to above $2.80 per MMBtu. This can be attributed to
strong demand by the utilities, as beaten down prices of natural
gas have convinced them to switch to the commodity from the more
costly coal.
ANADARKO PETROL (APC): Free Stock Analysis
Report
CHESAPEAKE ENGY (CHK): Free Stock Analysis
Report
DEVON ENERGY (DVN): Free Stock Analysis Report
ENCANA CORP (ECA): Free Stock Analysis Report
HALLIBURTON CO (HAL): Free Stock Analysis
Report
HELMERICH&PAYNE (HP): Free Stock Analysis
Report
MCGRAW-HILL COS (MHP): Free Stock Analysis
Report
NABORS IND (NBR): Free Stock Analysis Report
PATTERSON-UTI (PTEN): Free Stock Analysis
Report
To read this article on Zacks.com click here.
Zacks Investment
Research