The U.S. Energy Department's weekly inventory release showed a
smaller-than-expected rise in natural gas supplies due to the
commodity's brisk use for power generation in the face of extreme
summer temperatures, particularly in the Northeast. On a further
bullish note, the build was also lower than the five-year average
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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 58 billion cubic feet (Bcf) for the week ended Jul 12,
2013, below the guided range (of 66-70 Bcf gain) as per the
analysts surveyed by Platts, the energy information arm of
McGraw-Hill Financial Inc.
). The increase - the fourteenth injection of 2013 - was also
lower than the 5-year (2008-2012) average addition of 70 Bcf but
exceeded last year's build of 29 Bcf for the reported week.
Despite past week's build, the current storage level - at 2.745
trillion cubic feet (Tcf) - is down 414 Bcf (13.1%) from the last
year and is 34 Bcf (1.2%) 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 around $4.40 per MMBtu
in Apr - the highest in 21 months.
Following this, natural gas demand went through a lean period,
with the end of the winter heating season and ahead of the peak
cooling loads for summer. In this timeframe, the commodity
experienced a number of above-average builds, thereby pulling
down prices again.
With hot weather expected to prevail over the country during the
next few weeks, leading to strong electricity draws to run air
conditioners, the commodity's price may experience another upward
This, in turn, is expected to buoy natural gas producers,
particularly low cost suppliers like
Ultra Petroleum Corp.
), and big players including
Chesapeake Energy Corp.
Exxon Mobil 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 respective Zacks Ranks.
As of now, Ultra Petroleum, Chesapeake and Exxon Mobil are all
Zacks Rank #3 (Hold) stocks.