Back to top

Analyst Blog

The U.S. Energy Department's weekly inventory release showed a larger-than-expected decrease in natural gas supplies. Despite this drawdown, gas stocks continue to remain bloated, reflecting low demand amid robust onshore output.

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 like Anadarko Petroleum Corp. (APC - Analyst Report), Chesapeake Energy (CHK - Analyst Report), Encana Corp. (ECA - Analyst Report), Devon Energy Corp. (DVN - Analyst Report), Nabors Industries (NBR - Analyst Report), Patterson-UTI Energy (PTEN - Analyst Report), Helmerich & Payne (HP - Analyst Report) and Halliburton Company (HAL - Analyst Report).

Analysis of the Data

Stockpiles held in underground storage in the lower 48 states fell by 201 billion cubic feet (Bcf) for the week ended January 4, 2013, higher than the guided range (of 183–187 Bcf drawdown) as per the analysts surveyed by Platts, the energy information arm of McGraw-Hill Companies Inc. .

The decrease represents the seventh withdrawal of the 2012-2013 winter heating season after stocks hit an all-time high in early November. Moreover, the draw was significantly higher than both the last year’s withdrawal of 90 Bcf and the five-year (2008–2012) average reduction of 132 Bcf for the reported week.

As a result of the ‘better-than-expected’ draw during the past week, the current storage level – at 3.316 trillion cubic feet (Tcf) – is down 88 Bcf (2.6%) from the last year though it is still 320 Bcf (10.7%) above the five-year average.

In fact, natural gas inventories in underground storage have persistently exceeded the five-year average since late September 2011 and ended the usual summer stock-building season of April through October at a record 3.923 Tcf (as of October 31, 2012).

A supply glut kept the natural gas prices under pressure during the couple of years or so, as production from dense rock formations (shale) – through novel techniques of horizontal drilling and hydraulic fracturing – remain robust, thereby overwhelming demand.

However, with the U.S. winter set to be colder than the unusually warm last one, we might expect some balancing of the commodity’s supply/demand disparity on the back of its more normalized use for space heating by residential/commercial consumers.

This, in turn, could improve the prices and buoy natural gas producers like Ultra Petroleum Corp. (UPL - Analyst Report), Talisman Energy Inc. (TLM - Analyst Report), Encana and Chesapeake.

Zacks Rank

Among the natural gas-associated companies mentioned above, Anadarko Petroleum, Chesapeake Energy, Ultra Petroleum, Encana, Nabors, Devon Energy, Patterson-UTI Energy and Halliburton are all Rank #3 (Hold) stocks, implying that these are expected to perform in line with the broader U.S. equity market over the next one to three months.

However, Talisman retains a Rank #5 (Strong Sell), while Helmerich & Payne’s Rank #2 (Buy) implies that the company is likely to outperform the broader U.S. equity market over the next one to three months.

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
CENTURY ALU… CENX 26.65 +6.69%
SUPER MICRO… SMCI 26.01 +6.21%
TESLA MOTOR… TSLA 284.57 +5.51%
STRATTEC SE… STRT 83.76 +4.39%
BAIDU ADS BIDU 223.43 +4.15%