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Natural Gas Market Analysis in the Aftermath of the EIA Data

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The U.S. Energy Department's weekly inventory release showed a higher-than-expected decrease in natural gas supplies. This bullish withdrawal, coupled with slightly favorable weather predictions, meant that the U.S. benchmark finished the week up by a marginal 0.6%.   

Let us see how the natural gas situation looks like after the U.S. Energy Department's latest weekly inventory release:

EIA Reports a Withdrawal Above Market Expectations

Stockpiles held in underground storage in the lower 48 states fell by 91 billion cubic feet (Bcf) for the week ended Dec 4 compared to the guidance (of a 78 Bcf decline). The decrease was also above the five-year (2015-2019) average net shrinkage of 61 Bcf and last year’s drop of 57 Bcf for the reported week.

The latest official data puts total natural gas stocks at 3.848 trillion cubic feet (Tcf) — 309 Bcf (8.7%) above the 2019 levels at this time and 260 Bcf (7.2%) higher than the five-year average.

Total supply of natural gas averaged 95.8 Bcf per day, unchanged on a weekly basis as lower dry production was offset by higher shipments from Canada.

Meanwhile, daily consumption was up 9.9% to 113.4 Bcf compared to 103.2 Bcf in the previous week primarily due to higher heating loads. In particular, residential/commercial gas consumption surged around 21% from the previous week to average 36.8 Bcf per day.

Natural Gas Price Edges Higher

Natural gas prices rose last week following the higher-than-expected inventory draw. Futures for January delivery ended Friday at $2.591 per MMBtu on the New York Mercantile Exchange, up 0.6% from the same time previous week. The slight increase in the price of natural gas is also the result of forecast models, indicating a colder winter in December (than what was previously projected), which translates into larger draws due to increased use of heaters.

Glimpse Into the Future

As is the norm with natural gas, changes in temperature and weather forecasts can lead to price swings. With the latest models showing slightly bullish changes toward a chiller outlook, prices are expected to trend higher. But with stockpiles still bloated, downside risks would continue to outweigh the upside potential unless the weather pattern flips significantly to colder for natural gas usage to rise. While growing LNG exports and lower production are providing some support for a price recovery, it will be the magnitude of the cold across the United States that will dictate the energy commodity’s future.   

The lingering uncertainty over the heating 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 - Free Report) , SilverBow Resources (SBOW - Free Report) , Cabot Oil & Gas Corporation (COG - Free Report) , CNX Resources (CNX - Free Report) , Southwestern Energy Company (SWN - Free Report) etc. Others like Comstock Resources (CRK - Free Report) and Range Resources (RRC - Free Report) are further down the pecking order, with a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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