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Tepid Drawdown, Weather Keeps Natural Gas Prices Below $3 - Analyst Blog

The U.S. Energy Department's weekly inventory release showed an in-line decrease in natural gas supplies. However, the storage draw was significantly lower than the benchmark 5-year average withdrawal for the week.

As a result, the commodity's stockpiles still remain plentiful, thereby pressuring prices. The situation has been exacerbated by warm weather forecasts that called for the heating fuels' lower consumption.

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 fell by 115 billion cubic feet (Bcf) for the week ended Jan 30, 2015, within the guided range (of 114-118 Bcf draw) as per the analysts surveyed by Platts, the energy information arm of McGraw-Hill Financial Inc.

However, the decrease was less than the 5-year (2010-2014) average withdrawal of 165 Bcf for the reported week and was also below last year's drop of 259 Bcf. Following past week's less-than-average withdrawal, the current storage level - at 2.43 trillion cubic feet (Tcf) - is up 468 Bcf (23.9%) from last year though it is 29 Bcf (1.2%) below the five-year average.

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 remain in check, currently around $2.6 per million Btu (MMBtu).

Bearish Pressure on Prices

From a peak of about $13.50 per MMBtu in 2008 to just above $2.5 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. In the absence of major production cuts, we do not expect much upside in gas prices in the near term. Things were made worse by expectations of soft heating demand with forecasts of higher temperatures across certain regions of the U.S. during the next two weeks.

Gas-Weighted Companies to Suffer

This translates into limited upside for natural gas-weighted companies. In particular, those with Zacks Rank #4 (Sell) or Zacks Rank #5 (Strong Sell) like Range Resources Corp. ( RRC ), Penn Virginia Corp. ( PVA ), Bonanza Creek Energy Inc. ( BCEI ), Cabot Oil & Gas Corp. ( COG ), Comstock Resources Inc. ( CRK ) and EOG Resources Inc. ( EOG ) look to be in the most trouble.

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RANGE RESOURCES (RRC): Free Stock Analysis Report

CABOT OIL & GAS (COG): Free Stock Analysis Report

COMSTOCK RESOUR (CRK): Free Stock Analysis Report

EOG RES INC (EOG): Free Stock Analysis Report

PENN VIRGINIA (PVA): Free Stock Analysis Report

BONANZA CREEK (BCEI): 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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