The U.S. Energy Department's weekly inventory release showed a
larger-than-expected rise in natural gas supplies - the third in
as many weeks - on account of milder-than-seasonal weather.
Moreover, on a further bearish note, the build was well ahead of
the five-year average levels, thereby narrowing the deficit with
BILL BARRETT CP (BBG): Free Stock Analysis
FOREST OIL CORP (FST): Free Stock Analysis
LINN ENERGY LLC (LINE): Free Stock Analysis
MCGRAW HILL FIN (MHFI): Free Stock Analysis
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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 99 billion cubic feet (Bcf) for the week ended May 10,
2013, higher than the guided range (of 93-97 Bcf gain) as per the
analysts surveyed by Platts, the energy information arm of
McGraw-Hill Financial Inc.
). The increase - the fifth injection of 2013 - also exceeded
both last year's build of 56 Bcf and the 5-year (2008-2012)
average addition of 83 Bcf for the reported week.
Despite past week's build, the current storage level - at 1.964
trillion cubic feet (Tcf) - is down 694 Bcf (26.1%) from the last
year and is 83 Bcf (4.1%) below the benchmark five-year average.
Natural gas stocks hit an all-time high of 3.929 Tcf last year,
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 have started to look up in recent times. 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 has now
gone, thereby driving commodity prices to $4.38 per MMBtu - the
highest since Sep 2011.
This, in turn, is expected to buoy natural gas producers,
particularly smaller players like
Bill Barrett Corp.
Linn Energy LLC
Forest Oil Corp.
). With the financial incentive to produce the commodity and the
subsequent improvement in the companies' ability to generate
positive earnings surprises, they are likely to move higher from
their current Zacks Rank #3 (Hold).
But natural gas demand is currently going through a lean period -
with the end of the winter heating season and ahead of the peak
cooling loads for summer. Therefore, until hot summer weather
prevails across the country and increases electricity draws to
run air conditioners, the commodity may experience above-average
builds, thereby pulling down prices again.