The U.S. Energy Department's weekly inventory release showed a
larger-than-expected increase in natural gas supplies, reflecting
the commodity's tepid demand. However, the build came in well short
of the five-year average addition for the week.
Despite the relatively soft supply build, the latest injection -
the seventeenth in 2012 - has added to already bloated inventories.
Gas stocks - currently some 20% above the benchmark levels - are at
their highest point for this time of the year, reflecting low
demand amid robust onshore output. This has constantly pressured
spot prices that slipped to a 10-year low in April.
While natural gas inventories are no doubt still at elevated
levels, injections since late April have been significantly lower
than the average for this time, cutting the surplus relative to
last year and the five-year average.
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 or
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 like
Anadarko Petroleum Corporation
Devon Energy Corporation
Helmerich & Payne
Analysis of the Data
Stockpiles held in underground storage in the lower 48 states
rose by 33 billion cubic feet (Bcf) for the week ended July 6,
2012, above the guidance range (of 24-28 Bcf gain) as per the
analysts surveyed by Platts, the energy information arm of
McGraw-Hill Companies Inc
However, the increase was lower than both last year's build of
87 Bcf and the 5-year (2007-2011) average addition of 90 Bcf for
the reported week, thereby trimming the surplus relative to the
But in spite of the 'below-average' build during the past week,
the current storage level - at 3.135 trillion cubic feet (Tcf) - is
still up 548 Bcf (21.2%) from last year and 516 Bcf (19.7%) over
the five-year average.
Due to this huge natural gas surplus, inventories in underground
storage started to climb since March - weeks earlier than the usual
summer stock-building season of April through October. They have
persistently exceeded the five-year average since late September
last year and are likely to test the nation's underground storage
facilities by fall. In fact, the EIA foresees natural gas storage
at record highs of over 4.0 Tcf by October end.
A supply glut has pressured natural gas prices during the past
year or so, as production from dense rock formations (shale) -
through novel techniques of horizontal drilling and hydraulic
fracturing - remain robust, thereby overwhelming demand.
To make matters worse, near-record mild winter weather across
most of the country curbed natural gas demand for heating, leading
to an early beginning for the stock-building season. The grossly
oversupplied market continues to pressure commodity prices in the
backdrop of sustained strong production.
This prompted natural gas prices to drop approximately 63% from
2011 peak of $4.92 per million Btu (MMBtu) in June to a 10-year low
of $1.82 during late April 2012 (referring to spot prices at the
Henry Hub, the benchmark supply point in Louisiana).
However, in the recent past (since the week ended April 27, to
be precise), repeated smaller-than-average storage builds have
rallied back prices to around $2.85 per MMBtu. This can be
attributed to strong demand by the utilities, as beaten down prices
of natural gas have convinced them to switch to the commodity from
the more costly coal.
ANADARKO PETROL (APC): Free Stock Analysis
CHESAPEAKE ENGY (CHK): Free Stock Analysis
DEVON ENERGY (DVN): Free Stock Analysis Report
ENCANA CORP (ECA): Free Stock Analysis Report
HALLIBURTON CO (HAL): Free Stock Analysis
HELMERICH&PAYNE (HP): Free Stock Analysis
MCGRAW-HILL COS (MHP): Free Stock Analysis
NABORS IND (NBR): Free Stock Analysis Report
PATTERSON-UTI (PTEN): Free Stock Analysis
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