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Natural Gas Slips on Larger-than-Expected Stock Build
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The U.S. Energy Department's weekly inventory release showed a bigger-than-expected increase in natural gas supplies, which had investors concerned and created downward pressure on prices.
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: A Larger-than-Expected Rise in Storage
Stockpiles held in underground storage in the lower 48 states rose by 68 billion cubic feet (Bcf) for the week ended May 12, 2017, above the guidance (of 61 Bcf gain) as per the analysts surveyed by S&P Global Platts, a leading independent commodities and energy data provider.
On a positive note though, the increase was lower than both last year’s build of 71 Bcf and the 5-year (2012–2016) average addition of 87 Bcf for the reported week.
Following the past week’s climb, the current storage level – at 2.369 trillion cubic feet (Tcf) – is now 256 Bcf (12.1%) above the five-year average although stocks are 375 Bcf (13.7%) lower than the year-ago figure.
The bearish build in natural gas inventories created selling pressure on the commodity, which ended Friday at $3.256 per MMBtu – a weekly loss of 4.9%. Natural gas was also undone by predictions of mild temperatures over the next two weeks that will limit cooling demand for the fuel.
Positive Long-Term Thesis
The demand situation is expected to improve once warm weather sets in and gas-fired electricity generation for air conditioning need picks up.
In any case, long-term fundamentals for the commodity continue to be supportive on the back of structural imbalances. While domestic natural gas production is expected to rebound this year, the growing use of liquefied natural gas (or LNG), booming exports to Mexico, replacing coal-fired power plants and higher demand from industrial projects will likely take care of the increased output. The resulting effect will ensure natural gas storage keeping pace with the 5-year average in the near future, with deficits piling up later on.
Over the summer, these secular tailwinds are likely to have a positive impact on natural gas sentiment and price.
Which Stocks to Bet On
The perceived price strength augurs well for natural gas-heavy upstream companies like Rice Energy Inc. , Chesapeake Energy Corp. , Southwestern Energy Co. , WPX Energy Inc. , Cabot Oil & Gas Corp. and EQT Corp. (EQT - Free Report) .
However, each of these firms has a Zacks Rank #3 (Hold), which means that investors should preferably wait for a better entry point before buying shares in them.
Calgary, Alberta-based Canadian Natural Resources is engaged in the acquisition, development and exploitation of crude oil and natural gas properties. The 2017 Zacks Consensus Estimate for this company is $1.30, representing some 720% earnings per share growth over 2016. Next year’s average forecast is $2.51, pointing to another 93% growth.
Zacks' 2017 IPO Watch List
Before looking into the stocks mentioned above, you may want to get a head start on potential tech IPOs that are popping up on Zacks' radar. Imagine being in the first wave of investors to jump on a company with almost unlimited growth potential? This Special Report gives you the current scoop on 5 that may go public at any time.
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Natural Gas Slips on Larger-than-Expected Stock Build
The U.S. Energy Department's weekly inventory release showed a bigger-than-expected increase in natural gas supplies, which had investors concerned and created downward pressure on prices.
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: A Larger-than-Expected Rise in Storage
Stockpiles held in underground storage in the lower 48 states rose by 68 billion cubic feet (Bcf) for the week ended May 12, 2017, above the guidance (of 61 Bcf gain) as per the analysts surveyed by S&P Global Platts, a leading independent commodities and energy data provider.
On a positive note though, the increase was lower than both last year’s build of 71 Bcf and the 5-year (2012–2016) average addition of 87 Bcf for the reported week.
Following the past week’s climb, the current storage level – at 2.369 trillion cubic feet (Tcf) – is now 256 Bcf (12.1%) above the five-year average although stocks are 375 Bcf (13.7%) lower than the year-ago figure.
The bearish build in natural gas inventories created selling pressure on the commodity, which ended Friday at $3.256 per MMBtu – a weekly loss of 4.9%. Natural gas was also undone by predictions of mild temperatures over the next two weeks that will limit cooling demand for the fuel.
Positive Long-Term Thesis
The demand situation is expected to improve once warm weather sets in and gas-fired electricity generation for air conditioning need picks up.
In any case, long-term fundamentals for the commodity continue to be supportive on the back of structural imbalances. While domestic natural gas production is expected to rebound this year, the growing use of liquefied natural gas (or LNG), booming exports to Mexico, replacing coal-fired power plants and higher demand from industrial projects will likely take care of the increased output. The resulting effect will ensure natural gas storage keeping pace with the 5-year average in the near future, with deficits piling up later on.
Over the summer, these secular tailwinds are likely to have a positive impact on natural gas sentiment and price.
Which Stocks to Bet On
The perceived price strength augurs well for natural gas-heavy upstream companies like Rice Energy Inc. , Chesapeake Energy Corp. , Southwestern Energy Co. , WPX Energy Inc. , Cabot Oil & Gas Corp. and EQT Corp. (EQT - Free Report) .
However, each of these firms has a Zacks Rank #3 (Hold), which means that investors should preferably wait for a better entry point before buying shares in them.
In case you are looking for energy names for your portfolio, one could opt for Canadian Natural Resources Ltd. (CNQ - Free Report) . It has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Calgary, Alberta-based Canadian Natural Resources is engaged in the acquisition, development and exploitation of crude oil and natural gas properties. The 2017 Zacks Consensus Estimate for this company is $1.30, representing some 720% earnings per share growth over 2016. Next year’s average forecast is $2.51, pointing to another 93% growth.
Zacks' 2017 IPO Watch List
Before looking into the stocks mentioned above, you may want to get a head start on potential tech IPOs that are popping up on Zacks' radar. Imagine being in the first wave of investors to jump on a company with almost unlimited growth potential? This Special Report gives you the current scoop on 5 that may go public at any time.
One has driven from 0 to a $68 billion valuation in 8 years. Four others are a little less obvious but already show jaw-dropping growth. Download this IPO Watch List today for free >>