The U.S. Energy Department's weekly inventory release showed a
larger-than-expected decrease in natural gas supplies. Despite
this drawdown, gas stocks continue to remain bloated, reflecting
low demand amid robust onshore output.
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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
fell by 148 billion cubic feet (Bcf) for the week ended January
11, 2013, higher than the guided range (of 137-141 Bcf drawdown)
as per the analysts surveyed by Platts, the energy information
McGraw-Hill Companies Inc.
The decrease represents the eighth withdrawal of the 2012-2013
winter heating season after stocks hit an all-time high in early
November. Moreover, the draw was higher than both the last year's
withdrawal of 89 Bcf and the five-year (2008-2012) average
reduction of 144 Bcf for the reported week.
As a result of the 'better-than-expected' draw during the past
week, the current storage level - at 3.168 trillion cubic feet
(Tcf) - is down 147 Bcf (4.4%) from the last year though it is
still 316 Bcf (11.1%) above the five-year average.
In fact, natural gas inventories in underground storage have
persistently exceeded the five-year average since late September
2011 and ended the usual summer stock-building season of April
through October at a record 3.923 Tcf (as of October 31, 2012).
A supply glut kept the natural gas prices under pressure during
the couple of years or so, as production from dense rock
formations (shale) - through novel techniques of horizontal
drilling and hydraulic fracturing - remain robust, thereby
However, with the U.S. winter set to be colder than the unusually
warm last one, we might expect some balancing of the commodity's
supply/demand disparity on the back of its more normalized use
for space heating by residential/commercial consumers.
This, in turn, could improve the prices and buoy natural gas
producers, particularly smaller players like
Linn Energy LLC
EXCO Resources Inc.
Forest Oil Corp.
). With an improvement in the companies' ability to generate
positive earnings surprises, they can then move higher from their
current Zacks Rank #3 (Hold).