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Can Natural Gas Futures Continue to Stay Above the $2 Level?
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The U.S. Energy Department's weekly inventory release showed that natural gas supplies increased less than expected. The bullish inventory numbers, together with strong summer consumption, buoyed natural gas futures, which settled with a healthy gain week over week.
Despite this spike, the commodity is currently trading around the lowly $2 level in the face of certain headwinds. Considering that the space remains highly susceptible to unpredictable weather patterns that impact prices and market stability, at this time we advise investors to focus on stocks like Coterra Energy (CTRA - Free Report) and Cheniere Energy (LNG - Free Report) .
EIA Reports a Build Smaller Than Market Expectations
Stockpiles held in underground storage in the lower 48 states rose 21 billion cubic feet (Bcf) for the week ended Aug 2, below the analyst guidance of a 26 Bcf addition. The increase compared with the five-year (2019-2023) average net injection of 38 Bcf and last year’s growth of 25 Bcf for the reported week.
The latest increase puts total natural gas stocks at 3,270 Bcf, 248 Bcf (8.2%) above the 2023 level and 424 Bcf (14.9%) higher than the five-year average.
The total supply of natural gas averaged 110.2 Bcf per day, down 0.5 Bcf per day on a weekly basis, due to lower shipments from Canada and falling dry production.
Meanwhile, daily consumption rose to 105.8 Bcf from 102 Bcf in the previous week, primarily on the back of higher consumption for power generation as the weather turned out to be warmer than normal.
Natural Gas Prices Finish Higher
Natural gas prices trended northward last week, following the lower-than-expected inventory build. Futures for September delivery ended Friday at $2.143 on the New York Mercantile Exchange, up some 9% from the previous week’s closing. However, one should not forget that the commodity has plunged more than 30% over the past two months after climbing some 47% in April and May.
Investors should know that natural gas realization has been under pressure from strong production, elevated stockpiles, and tepid weather-related demand. It's worth mentioning that the current inventory levels are well above the year-ago figure and the five-year average. The bearish sentiment surrounding the commodity has prompted producers APA Corporation (APA - Free Report) and EQT Corporation (EQT - Free Report) to hit the brakes on new drilling.
APA expects to curtain natural gas output by 90 million cubic feet per day (MMcf/d) in the third quarter after lowering its second-quarter volumes by 78 MMcf/d to combat depressed realizations. Separately, the Appalachian Basin-focused EQT — the largest domestic producer of natural gas — said that it would continue to cut daily production by about 0.5 Bcf through the second half of this year.
Interestingly, some of these companies had just started bringing earlier-deferred production back online following the recovery in prices during the April-May period. It now appears that the increased output put renewed pressure on natural gas prices. This is despite predictions of hotter-than-normal weather over the coming weeks.
Meanwhile, a stable demand catalyst in the form of continued strong LNG feed gas deliveries is supporting natural gas. LNG shipments for export from the United States have been elevated of late due to environmental reasons and Europe’s endeavor to move away from its dependence on Russian natural gas supplies due to the war in Ukraine.
Final Thoughts
The upshot of all these factors — the natural gas market — remains an oversupplied one. It endured a torrid 2023, briefly breaking below the $2 threshold for the first time since 2020. The situation was not much different in early 2024, with the fuel reaching a multi-year low near $1.48 in late March and struggling to sustain a rally over the psychological mark of $2.
While natural gas staged quite the turnaround in a matter of weeks, given the favorable temperature and lower production outlook, it has dropped again, prompting producers to cut volumes further.
Based on these factors, the space is currently quite unpredictable and spooked by sudden changes in weather and production patterns. As such, investors are advised to continue exercising caution, and preferably hold on to fundamentally strong stocks like Coterra Energy and Cheniere Energy.
Coterra Energy: It is an independent upstream operator primarily engaged in the exploration, development and production of natural gas. Headquartered in Houston, TX, the firm owns some 183,000 net acres in the gas-producing Marcellus Shale of the Appalachian Basin. This Zacks Rank #3 (Hold) company churned out an average of 2,262.7 million cubic feet daily from these assets in 2023.
Coterra beat the Zacks Consensus Estimate for earnings in two of the trailing four quarters and missed in the other two, the average being 5.9%. Valued at around $17.8 billion, CTRA has fallen 13.9% in a year.
Cheniere Energy: Being the first company to receive regulatory approval to export LNG from its 2.6 billion cubic feet per day Sabine Pass terminal, Cheniere Energy enjoys a distinct competitive advantage.
Cheniere Energy beat the Zacks Consensus Estimate for earnings in two of the last four quarters and missed in the other two. This #3 Ranked natural gas exporter has a trailing four-quarter earnings surprise of roughly 55.9%, on average. LNG shares have moved up 11.3% in a year.
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Can Natural Gas Futures Continue to Stay Above the $2 Level?
The U.S. Energy Department's weekly inventory release showed that natural gas supplies increased less than expected. The bullish inventory numbers, together with strong summer consumption, buoyed natural gas futures, which settled with a healthy gain week over week.
Despite this spike, the commodity is currently trading around the lowly $2 level in the face of certain headwinds. Considering that the space remains highly susceptible to unpredictable weather patterns that impact prices and market stability, at this time we advise investors to focus on stocks like Coterra Energy (CTRA - Free Report) and Cheniere Energy (LNG - Free Report) .
EIA Reports a Build Smaller Than Market Expectations
Stockpiles held in underground storage in the lower 48 states rose 21 billion cubic feet (Bcf) for the week ended Aug 2, below the analyst guidance of a 26 Bcf addition. The increase compared with the five-year (2019-2023) average net injection of 38 Bcf and last year’s growth of 25 Bcf for the reported week.
The latest increase puts total natural gas stocks at 3,270 Bcf, 248 Bcf (8.2%) above the 2023 level and 424 Bcf (14.9%) higher than the five-year average.
The total supply of natural gas averaged 110.2 Bcf per day, down 0.5 Bcf per day on a weekly basis, due to lower shipments from Canada and falling dry production.
Meanwhile, daily consumption rose to 105.8 Bcf from 102 Bcf in the previous week, primarily on the back of higher consumption for power generation as the weather turned out to be warmer than normal.
Natural Gas Prices Finish Higher
Natural gas prices trended northward last week, following the lower-than-expected inventory build. Futures for September delivery ended Friday at $2.143 on the New York Mercantile Exchange, up some 9% from the previous week’s closing. However, one should not forget that the commodity has plunged more than 30% over the past two months after climbing some 47% in April and May.
Investors should know that natural gas realization has been under pressure from strong production, elevated stockpiles, and tepid weather-related demand. It's worth mentioning that the current inventory levels are well above the year-ago figure and the five-year average. The bearish sentiment surrounding the commodity has prompted producers APA Corporation (APA - Free Report) and EQT Corporation (EQT - Free Report) to hit the brakes on new drilling.
APA expects to curtain natural gas output by 90 million cubic feet per day (MMcf/d) in the third quarter after lowering its second-quarter volumes by 78 MMcf/d to combat depressed realizations. Separately, the Appalachian Basin-focused EQT — the largest domestic producer of natural gas — said that it would continue to cut daily production by about 0.5 Bcf through the second half of this year.
Interestingly, some of these companies had just started bringing earlier-deferred production back online following the recovery in prices during the April-May period. It now appears that the increased output put renewed pressure on natural gas prices. This is despite predictions of hotter-than-normal weather over the coming weeks.
Meanwhile, a stable demand catalyst in the form of continued strong LNG feed gas deliveries is supporting natural gas. LNG shipments for export from the United States have been elevated of late due to environmental reasons and Europe’s endeavor to move away from its dependence on Russian natural gas supplies due to the war in Ukraine.
Final Thoughts
The upshot of all these factors — the natural gas market — remains an oversupplied one. It endured a torrid 2023, briefly breaking below the $2 threshold for the first time since 2020. The situation was not much different in early 2024, with the fuel reaching a multi-year low near $1.48 in late March and struggling to sustain a rally over the psychological mark of $2.
While natural gas staged quite the turnaround in a matter of weeks, given the favorable temperature and lower production outlook, it has dropped again, prompting producers to cut volumes further.
Based on these factors, the space is currently quite unpredictable and spooked by sudden changes in weather and production patterns. As such, investors are advised to continue exercising caution, and preferably hold on to fundamentally strong stocks like Coterra Energy and Cheniere Energy.
Coterra Energy: It is an independent upstream operator primarily engaged in the exploration, development and production of natural gas. Headquartered in Houston, TX, the firm owns some 183,000 net acres in the gas-producing Marcellus Shale of the Appalachian Basin. This Zacks Rank #3 (Hold) company churned out an average of 2,262.7 million cubic feet daily from these assets in 2023.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Coterra beat the Zacks Consensus Estimate for earnings in two of the trailing four quarters and missed in the other two, the average being 5.9%. Valued at around $17.8 billion, CTRA has fallen 13.9% in a year.
Cheniere Energy: Being the first company to receive regulatory approval to export LNG from its 2.6 billion cubic feet per day Sabine Pass terminal, Cheniere Energy enjoys a distinct competitive advantage.
Cheniere Energy beat the Zacks Consensus Estimate for earnings in two of the last four quarters and missed in the other two. This #3 Ranked natural gas exporter has a trailing four-quarter earnings surprise of roughly 55.9%, on average. LNG shares have moved up 11.3% in a year.