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Natural Gas Retreats Toward $2 on EIA Report & Mild Weather
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The U.S. Energy Department's weekly inventory release showed that natural gas supplies increased more than expected. The bearish inventory numbers, together with supply and weather headwinds, affected natural gas futures, which settled with a loss week over week.
As a matter of fact, the commodity is currently trading around the lowly $2 level. Considering that the space remains highly susceptible to unpredictable temperature 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 Larger Than Market Expectations
Stockpiles held in underground storage in the lower 48 states rose 35 billion cubic feet (Bcf) for the week ended Aug 16, above the analyst guidance of a 28 Bcf addition. The increase compared with the five-year (2019-2023) average net injection of 41 Bcf and last year’s growth of 23 Bcf for the reported week.
The weekly build puts total natural gas stocks at 3,299 Bcf, which is 221 Bcf (7.2%) above the 2023 level and 369 Bcf (12.6%) higher than the five-year average.
The total supply of natural gas averaged 107.8 Bcf per day, unchanged on a weekly basis.
Meanwhile, daily consumption rose to 100.5 Bcf from 99.3 Bcf in the previous week, mainly reflecting higher natural gas consumed for power generation.
Natural Gas Prices Finish Lower
Natural gas prices trended southward last week following the higher-than-expected inventory build. Futures for September delivery ended Friday at $2.02 on the New York Mercantile Exchange, down 4.8% from the previous week’s closing. The drop in natural gas realization is also the result of predictions of milder weather. Remember, the commodity has plunged more than 35% over the past two-and-a-half months after climbing some 47% in April and May.
Investors should note that natural gas prices have been under pressure due to strong production, high stockpiles and weak weather-related demand. Current inventory levels are significantly above last year's figures and the five-year average. This bearish outlook has led APA Corporation (APA - Free Report) and EQT Corporation (EQT - Free Report) to slow down new drilling.
APA plans to cut natural gas output by 90 million cubic feet per day (MMcf/d) in the third quarter after already reducing second-quarter volumes by 78 MMcf/d to address weak prices. Similarly, EQT, the largest U.S. natural gas producer, will continue reducing daily production by about 0.5 Bcf through the second half of the year.
Interestingly, some of these companies had just begun ramping up previously deferred production after prices recovered in April-May. However, the increased output has put renewed pressure on natural gas prices.
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 natural gas market remains oversupplied, grappling with the aftermath of a challenging 2023 when it briefly dipped below $2 for the first time since 2020. This year, the fuel hit a multi-year low of $1.48 in March, struggling to stay above the $2 mark.
Although natural gas saw a brief rally, thanks to favorable weather and a dip in production, prices have dropped again, forcing producers to cut volumes further.
Given these unpredictable shifts, the market remains volatile and sensitive to sudden changes in weather and production patterns. Investors are advised to remain cautious and consider holding 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 $17.9 billion, CTRA has fallen 13.3% 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 13.2% in a year.
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Natural Gas Retreats Toward $2 on EIA Report & Mild Weather
The U.S. Energy Department's weekly inventory release showed that natural gas supplies increased more than expected. The bearish inventory numbers, together with supply and weather headwinds, affected natural gas futures, which settled with a loss week over week.
As a matter of fact, the commodity is currently trading around the lowly $2 level. Considering that the space remains highly susceptible to unpredictable temperature 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 Larger Than Market Expectations
Stockpiles held in underground storage in the lower 48 states rose 35 billion cubic feet (Bcf) for the week ended Aug 16, above the analyst guidance of a 28 Bcf addition. The increase compared with the five-year (2019-2023) average net injection of 41 Bcf and last year’s growth of 23 Bcf for the reported week.
The weekly build puts total natural gas stocks at 3,299 Bcf, which is 221 Bcf (7.2%) above the 2023 level and 369 Bcf (12.6%) higher than the five-year average.
The total supply of natural gas averaged 107.8 Bcf per day, unchanged on a weekly basis.
Meanwhile, daily consumption rose to 100.5 Bcf from 99.3 Bcf in the previous week, mainly reflecting higher natural gas consumed for power generation.
Natural Gas Prices Finish Lower
Natural gas prices trended southward last week following the higher-than-expected inventory build. Futures for September delivery ended Friday at $2.02 on the New York Mercantile Exchange, down 4.8% from the previous week’s closing. The drop in natural gas realization is also the result of predictions of milder weather. Remember, the commodity has plunged more than 35% over the past two-and-a-half months after climbing some 47% in April and May.
Investors should note that natural gas prices have been under pressure due to strong production, high stockpiles and weak weather-related demand. Current inventory levels are significantly above last year's figures and the five-year average. This bearish outlook has led APA Corporation (APA - Free Report) and EQT Corporation (EQT - Free Report) to slow down new drilling.
APA plans to cut natural gas output by 90 million cubic feet per day (MMcf/d) in the third quarter after already reducing second-quarter volumes by 78 MMcf/d to address weak prices. Similarly, EQT, the largest U.S. natural gas producer, will continue reducing daily production by about 0.5 Bcf through the second half of the year.
Interestingly, some of these companies had just begun ramping up previously deferred production after prices recovered in April-May. However, the increased output has put renewed pressure on natural gas prices.
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 natural gas market remains oversupplied, grappling with the aftermath of a challenging 2023 when it briefly dipped below $2 for the first time since 2020. This year, the fuel hit a multi-year low of $1.48 in March, struggling to stay above the $2 mark.
Although natural gas saw a brief rally, thanks to favorable weather and a dip in production, prices have dropped again, forcing producers to cut volumes further.
Given these unpredictable shifts, the market remains volatile and sensitive to sudden changes in weather and production patterns. Investors are advised to remain cautious and consider holding 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 $17.9 billion, CTRA has fallen 13.3% 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 13.2% in a year.