The U.S. Energy Department's weekly inventory release showed an
in-line increase in natural gas supplies, as domestic consumption -
reflecting air conditioning demand - declined with temperatures
falling from their summer highs. Additionally, production
level remained strong.
Gas stocks - currently some 10% above the benchmark average 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.
However, the most recent build - though as per expectations - was
still 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
Anadarko Petroleum Corporation
Devon Energy Corporation
Helmerich & Payne
Analysis of the Data
Stockpiles held in underground storage in the lower 48 states rose
by 67 billion cubic feet (Bcf) for the week ended September 14,
2012, within the guided range (of 64-68 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 the last year's build of
89 Bcf and the five-year (2007-2011) average addition of 73 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 3.496 trillion cubic feet (Tcf) - is
still up 320 Bcf (10.1%) from the last year and 278 Bcf (8.6%) 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 around 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
parts 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 dive approximately 63% from the
2011 peak of $4.92 per million Btu (MMBtu) in June to a 10-year low
of $1.82 per MMBtu during late April 2012 (referring to spot prices
at the Henry Hub, the benchmark supply point in Louisiana).
However, in the recent past, repeated smaller-than-average storage
builds have rallied back prices toward $3.00 per MMBtu. This can be
attributed to strong demand by the utilities, as beaten down prices
of natural gas convinced them to switch to the commodity from the
more costly coal.
As hot summer weather prevailed across the country over the past
two months, homes and businesses were prompted to increase
electricity draws to run air conditioners.
ANADARKO PETROL (APC): Free Stock Analysis
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