Massive Climb in Nat-Gas Supplies Adds Pressure
The U.S. Energy Department's weekly inventory release showed a larger-than-expected increase in natural gas supplies. Following the bearish inventory news, natural gas prices tanked to its lowest level since Apr 29.
As it is, 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 106 billion cubic feet (Bcf) for the week ended Sep 18, 2015, above the guided range (of 94-98 Bcf gain) as per the analysts surveyed by Platts, the energy information arm of McGraw-Hill Financial Inc. The increase - the 25th successive weekly injection - was also more than both last year's build of 96 Bcf and the 5-year (2010-2014) average addition of 83 Bcf for the reported week.
Following past week's climb, the current storage level - at 3.440 trillion cubic feet (Tcf) - is up 466 Bcf (15.7%) from last year and is 148 Bcf (4.5%) above the five-year average.
Natural Gas Drops to 5-Month Low
Gas prices skidded to $2.521 per MMBtu - their lowest level in 5 months - Thursday in a selloff spurred by the above-average injection into storage. Though the commodity recovered somewhat over the next few trading sessions, it was still down 1.6% for the week, settling at $2.564 per MMBtu on Friday.
Prices Likely to Stay Depressed
Demand for the fuel is expected to be moderate in the near-term amid predictions of waning heating requirement with the imminent arrival of colder autumn temperatures subsequent to the end of summer.
As it is, natural gas prices are 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 including the likes of Chesapeake Energy Corp. CHK , Range Resources Corp. RRC , Southwestern Energy Co. SWN , Cabot Oil & Gas Corp. COG , Rice Energy Inc. RICE , and Eclipse Resources Corp. ECR . In particular, natural gas-leveraged E&P stocks with a Zacks Rank #4 (Sell) like Range Resources and Southwestern look to be in the most trouble.