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Bullish EIA Notwithstanding, Natural Gas Remains Subdued

The U.S. Energy Department's weekly inventory release showed a smaller-than-expected increase in natural gas supplies. Following the bullish inventory news, natural gas prices gained more than 2% and ended the week on a positive note.

However, the commodity is still averaging less than half of what it did some 5-6 years back. With production remaining plentiful and expected to outpace demand for most of 2015, the commodity is likely to stay depressed for a while.

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 events.

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 68 billion cubic feet (Bcf) for the week ended Sep 4, 2015, below the guided range (of 72-76 Bcf gain) as per the analysts surveyed by Platts, the energy information arm of McGraw-Hill Financial Inc. The increase - the 23rd successive weekly injection - was also less than last year's build of 90 Bcf though it surpassed the 5-year (2010-2014) average addition of 63 Bcf for the reported week.

Notwithstanding the past week's less-than-expected climb, the current storage level - at 3.261 trillion cubic feet (Tcf) - is still up 473 Bcf (17%) from last year and is 127 Bcf (4%) above the five-year average.

Prices Rally After Bullish Storage Data but Remain Under Pressure

Spurred by the bullish storage injection, gas prices jumped as much as 2.4% to $2.72 per million Btu (MMBtu) on Thursday. Though the commodity shed some of its gains later in the week on expectations of tepid cooling demand with the imminent arrival of colder autumn temperatures, it was still up 1.4% for the week.

But natural gas prices are still way off the heights reached some years back. From a peak of about $13.50 per MMBtu in 2008 to below $3 now - sinking in between to a 10-year low of under $2 in 2012 - the plummeting value of natural gas represents a decline of around 80% over seven years. With production from the major shale plays remaining strong and the commodity's demand failing to keep pace with this supply surge, natural gas prices have been held back. Even the summer cooling demand has been of little help.

The price weakness translates into limited upside for natural gas-weighted companies like Chesapeake Energy Corp. CHK , Range Resources Corp. RRC , QEP Resources Inc. QEP , EOG Resources Inc. EOG and Devon Energy Corp. DVN .

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DEVON ENERGY (DVN): Free Stock Analysis Report

RANGE RESOURCES (RRC): Free Stock Analysis Report

CHESAPEAKE ENGY (CHK): Free Stock Analysis Report

QEP RESOURCES (QEP): Free Stock Analysis Report

EOG RES INC (EOG): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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