Natural Gas Inventory Injection Comes In Above Expectations

The U.S. Energy Department's weekly inventory release showed a larger-than-expected increase in natural gas supplies. The injection was also higher than the five-year average as mild spring weather continues to limit heating and air conditioning demand.

Analysis: More-than-Expected Rise in Storage

Stockpiles held in underground storage in the lower 48 states rose by 106 billion cubic feet (Bcf) for the week ended May 10, above the guidance (of 101 Bcf gain) as per the analysts surveyed by S&P Global Platts. Moreover, the increase was higher than the five-year (2014-2018) average net injection of 89 Bcf and last year’s increase of 104 Bcf for the reported week.

The latest rise in inventories puts total natural gas stocks at 1.653 trillion cubic feet (Tcf) - 130 Bcf (8.5%) above 2018 levels at this time but 286 Bcf (14.7%) under the five-year average.

Fundamentally speaking, total supply of natural gas averaged around 94.4 Bcf per day, essentially unchanged on a weekly basis as dry production remained flat. Meanwhile, daily consumption rose 1.6% to 77 Bcf primarily due to stronger residential/commercial demand.

Natural Gas Futures Remain Below $3

While natural gas futures have edged up a bit from the 3-year lows of below $2.5 per MMBtu in April and currently trade around $2.6 per MMBtu, it’s still 47% below the four-year high of $4.929 per MMBtu reached in mid-November.

The early onset of winter, together with the lowest level of stocks in 15 years, demand from power plants and growing LNG shipments lifted the commodity to almost $5 per MMBtu. But the euphoria didn’t last long as a mild weather led to smaller withdrawals that markedly reduced the storage deficit and sent prices lower.

What's the Future of Natural Gas Prices?

The fundamentals of natural gas consumption continue to be favorable. The demand for cleaner fuels and the commodity’s relatively lower price has catapulted natural gas' share of domestic electricity generation to 35%, from 25% in 2011. Moreover, new pipelines to Mexico, together with large-scale liquefied gas export facilities have meant that exports out of the U.S. are set for a quantum leap. Finally, higher consumption from industrial projects will likely ensure strong natural gas demand.  

However, record high production in the United States and expectations for explosive growth through 2020 means that supply will keep pace with demand. Therefore, prices are likely to trade sideways but for weather-driven movements. Also, with the traditional withdrawal season (when supplies fall on heating demand due to cold weather) having ended in March, consumption is likely to decline in the near term.

Want to Own a Natural Gas Stock Now?

The uncertain natural gas fundamentals (considering its seasonal nature) is responsible for the understandable reluctance on investors’ part to dip their feet into these stocks.

Moreover, most natural gas-heavy upstream companies like Gulfport Energy Corp. GPOR, Antero Resources AR, Cabot Oil & Gas Corp. COG, SilverBow Resources, Inc. SBOW, Southwestern Energy Company SWN etc. carry a Zacks Rank #3 (Hold), which means that investors should preferably wait for a better entry point before buying shares in them.  Some like Chesapeake Energy Corp. CHK are further down the pecking order, with Zacks Rank #4 (Sell).

If you are looking for near-term natural gas play, Range Resources Corp. RRC might be a good selection. The company has a Zacks Rank #2 (Buy).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

This Fort Worth, TX-headquartered company’s expected EPS growth rate for three to five years currently stands at 23.7%, comparing favorably with the industry's growth rate of 19.1%.

The Could Be the Fastest Way to Grow Wealth in 2019

Research indicates one sector is poised to deliver a crop of the best-performing stocks you'll find anywhere in the market. Breaking news in this space frequently creates quick double- and triple-digit profit opportunities.

These companies are changing the world – and owning their stocks could transform your portfolio in 2019 and beyond. Recent trades from this sector have generated +98%, +119% and +164% gains in as little as 1 month.

Click here to see these breakthrough stocks now >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Southwestern Energy Company (SWN): Free Stock Analysis Report
Cabot Oil & Gas Corporation (COG): Free Stock Analysis Report
Antero Resources Corporation (AR): Free Stock Analysis Report
Chesapeake Energy Corporation (CHK): Free Stock Analysis Report
Range Resources Corporation (RRC): Free Stock Analysis Report
Gulfport Energy Corporation (GPOR): Free Stock Analysis Report
SilverBow Resources Inc. (SBOW): Free Stock Analysis Report
To read this article on click here.
Zacks Investment Research

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

More Related Articles

Info icon

This data feed is not available at this time.

Sign up for the TradeTalks newsletter to receive your weekly dose of trading news, trends and education. Delivered Wednesdays.