The U.S. Energy Department's weekly inventory release showed a
larger-than-expected rise in natural gas supplies on account of
weak demand due to cooler-than-normal temperatures. Moreover, on
a further bearish note, the build was well ahead of the five-year
average levels, thereby narrowing the deficit with the benchmark.
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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 59 billion cubic feet (Bcf) for the week ended Jul 26,
2013, higher than the guided range (of 54-58 Bcf gain) as per the
analysts surveyed by Platts, the energy information arm of
McGraw-Hill Financial Inc.
). The increase - the sixteenth injection of 2013 - also exceeded
both last year's build of 28 Bcf and the 5-year (2008-2012)
average addition of 47 Bcf for the reported week.
Despite past week's large build, the current storage level - at
2.845 trillion cubic feet (Tcf) - is down 368 Bcf (11.5%) from
the last year and is 34 Bcf (1.2%) below the benchmark five-year
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 mild weather expected to prevail over the country during the
next few weeks, leading to tepid electricity draws to run air
conditioners, the commodity's price may experience another slide.
This, in turn, is expected to pull down natural gas producers,
particularly small suppliers like
WPX Energy Inc.
). While big players like
Chesapeake Energy Corp.
Exxon Mobil Corp.
) - both Zacks Rank #3 (Hold) stocks - are better equipped than
others, we caution investors about WPX Energy, which sports a
Zacks Rank #4 (Sell).