The U.S. Energy Department's weekly inventory release showed a
higher-than-average rise in natural gas supplies, as domestic
consumption declined with increase in temperatures across most
parts of the country.
BILL BARRETT CP (BBG): Free Stock Analysis
FOREST OIL CORP (FST): Free Stock Analysis
LINN ENERGY LLC (LINE): 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 88 billion cubic feet (Bcf) for the week ended May 3,
2013, within the guided range (of 86-90 Bcf gain) as per the
analysts surveyed by Platts, the energy information arm of
McGraw-Hill Companies Inc.
) . But the increase - the fourth injection of 2013 - exceeded
both last year's build of 30 Bcf and the 5-year (2008-2012)
average addition of 69 Bcf for the reported week.
Despite past week's build, the current storage level - at 1.865
trillion cubic feet (Tcf) - is down 737 Bcf (28.3%) from the last
year and is 99 Bcf (5.0%) below the benchmark five-year average.
Natural gas stocks hit an all-time high of 3.929 Tcf in early Nov
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 as the weather continues to turn milder and temperatures
reach above-normal levels, natural gas demand may suffer in the
near future on account of above-average builds, thereby pulling
down prices again.