The U.S. Energy Department's weekly inventory release showed
an in-line rise in natural gas supplies. However, on a bearish
note, the storage build was ahead of the benchmark 5-year average
gain for the week.
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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 65 billion cubic feet (Bcf) for the week ended Sep 6,
2013, within the guided range (of 64-68 Bcf gain) as per the
analysts surveyed by Platts, the energy information arm of
McGraw-Hill Financial Inc.
). But the increase - the twenty-second injection of 2013
-exceeded both last year's build of 27 Bcf and the 5-year
(2008-2012) average addition of 62 Bcf for the reported week.
Following past week's build, the current storage level - at 3.253
trillion cubic feet (Tcf) - is now 46 Bcf (1.4%) above the 5-year
average. However, supplies are still down 172 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.
During the last few weeks, though, natural gas demand has gone
through a relatively lean period, as mild weather prevailed over
the country, leading to tepid electricity draws to run air
conditioners. This has led to a slide in the commodity's price.
In fact, healthy injections over last few weeks, plus strong
production have meant that supplies have overturned the deficit
over the five-year average.
However, with above-normal temperatures expected during the next
few weeks, leading to strong power demand, natural gas price may
experience another upward curve. This, in turn, is expected to
buoy natural gas producers, particularly small ones like
Carrizo Oil & Gas Inc.
While big players like
Exxon Mobil Corp.
Southwestern Energy Co.
) - both Zacks Rank #3 (Hold) stocks - would also benefit
from the improved fundamentals, they are large-cap, low-beta
entities with slow price action.
As such, we advise investors to accumulate Carrizo shares, which
sports a Zacks Rank #1 (Strong Buy). With the financial incentive
to produce the commodity and the subsequent improvement in the
company's ability to generate positive earnings surprises, it has
the potential to rise significantly from current levels.