The U.S. Energy Department's weekly inventory release showed
a lower-than-expected increase in natural gas supplies. The encouraging
inventory numbers, coupled with favorable weather predictions, meant that the
U.S. benchmark gained 3.5% in the holiday-shortened last week.
Let us see how the natural gas situation looks like after
the U.S. Energy Department's latest weekly inventory release:
EIA Reports a Build Below Market Expectations
Stockpiles held in underground storage in the lower 48 states
rose by 14 billion cubic feet (Bcf) for the week ended Mar 26 compared to the
guidance of a 19 Bcf addition. The increase compared with the five-year
(2016-2021) average net shrinkage of 24 Bcf and last year’s drop of 20 Bcf for
the reported week.
The first build of the year puts total natural gas stocks at
1,764 billion cubic feet (Bcf), which is 225 Bcf (11.3%) below the 2020 levels
at this time and 36 Bcf (2%) lower than the five-year average.
Total supply of natural gas averaged 95.4 Bcf per day,
essentially unchanged on a weekly basis as higher dry production was offset by
lower shipments from Canada.
Meanwhile, daily consumption fell 4.4% to 92.5 Bcf from 96.8
Bcf in the previous week, dragged down by lower residential/commercial gas
usage due to above-average temperatures that stymied heating usage.
Natural Gas Prices Post a Gain
Natural gas prices rose last week following the
lower-than-expected inventory build. Futures for May delivery ended Thursday at
$2.64 per million British thermal units (MMBtu) on the New York Mercantile
Exchange, up 3.5% from the previous week’s closing. The increase in the price
of natural gas is also the result of forecast models, indicating a cold front
across the Midwest and Northeast in the days ahead, which would translate into
bigger draws due to more use of heaters.
Wrap-Up
As is the norm with natural gas, changes in temperature and
weather forecasts can lead to price swings. With the latest models showing
bullish changes toward a rather strong late season cold blast, prices have edged
up a bit.
However, with winter drawing to a close and the so-called
‘shoulder season’ of typically low natural gas demand in the spring about to
settle in, prices could be in for more downside risks than upside potential.
While growing LNG export and stable industrial demand are providing some
support for a price gain, it will be weather conditions across the United
States that will dictate the energy commodity’s future.
The lingering uncertainty over the fuel means that most natural
gas-focused companies carry a Zacks Rank #3 (Hold). As a result, investors
should preferably wait for a better entry point before buying shares in EQT
Corporation EQT, Range Resources RRC, Comstock Resources CRK, SilverBow
Resources SBOW, Southwestern Energy Company SWN etc. Others like Cabot Oil
& Gas Corporation COG are further down the pecking order, with a Zacks Rank
#4 (Sell).
If you are still looking for near-term natural gas plays,
Antero Resources AR might be a good selection.
Antero Resources is the third-largest U.S. gas producer and
a leading operator in the Appalachian basin — the most-prolific domestic gas
basin — with around 515,000 net acres. More than 65% of the company’s total
output is natural gas. While the company’s low-cost, high-quality inventory
should ensure long-term output growth, cash flows will also receive some
downside protection from attractive hedges.
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