Natural gas spot prices tumbled to around $3.50 per million
Btu (MMBtu) on Thursday, Sep 26, following the U.S. Energy
Department's weekly inventory release that showed a
larger-than-expected rise in the commodity's supplies. On a
further bearish note, the storage build was also higher than the
benchmark 5-year average gain for the week.
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Mild weather forecasts - that could slow demand even more -
further worsened the situation. However, natural gas ended
slightly higher Friday (at $3.59 per MMBtu), as investors came
back to the market to accumulate the commodity at low
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 87 billion cubic feet (Bcf) for the week ended Sep 20,
2013, higher than the guided range (of 74-78 Bcf gain) as per the
analysts surveyed by Platts, the energy information arm of
McGraw-Hill Financial Inc.
). The increase - the twenty-fourth injection of 2013 - also
exceeded both last year's build of 79 Bcf and the 5-year
(2008-2012) average addition of 75 Bcf for the reported week.
Following past week's build, the current storage level - at 3.386
trillion cubic feet (Tcf) - is now 30 Bcf (0.9%) above the 5-year
average. However, supplies are still down 179 Bcf (5.0%) from the
last year's level.
Natural gas stocks hit an all-time high of 3.929 Tcf in 2012, 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 started to look up in 2013. 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 was gone, thereby driving commodity prices to
around $4.40 per MMBtu in Apr - the highest in 21 months.
However, with moderate weather expected during the next few
weeks, leading to reduced power demand, natural gas price may
experience another downward curve. This, in turn, is expected to
pull down natural gas producers, particularly small ones.
Considering the turbulent market dynamics of the natural gas
industry, we advocate big, relatively low-risk names like
Exxon Mobil Corp.
Chesapeake Energy Corp.
) - both Zacks Rank #3 (Hold) stocks.
However, one company that stands out is
Carrizo Oil & Gas Inc.
). This Zacks Rank #2 (Buy), small, inexpensive natural gas
producer has seen its share price jump more than 75% since the
start of 2013. Despite this price appreciation, we remain
optimistic on the firm's near-term prospects, supported by its
exposure to the high-return shale plays, as well as the company's
above-average production growth.