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Natural Gas Loses 6.7% in One Week: Here's What Happened

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The U.S. Energy Department's weekly inventory release showed a lower-than-expected decrease in natural gas supplies. This bearish withdrawal, coupled with unfavorable weather predictions, meant that the U.S. benchmark lost nearly 7% last week.

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 Smaller Than Market Expectations

Stockpiles held in underground storage in the lower 48 states fell by 152 billion cubic feet (Bcf) for the week ended Dec 18 compared to the guidance (of a 154 Bcf decline). However, the decrease was above the five-year (2015-2019) average net shrinkage of 127 Bcf and last year’s drop of 146 Bcf for the reported week.

The latest official data puts total natural gas stocks at 3.574 trillion cubic feet (Tcf), which is 278 Bcf (8.4%) above the 2019 levels at this time and 218 Bcf (6.5%) higher than the five-year average.

Total supply of natural gas averaged 95.7 Bcf per day, essentially unchanged on a weekly basis as higher dry production was offset by lower shipments from Canada.

Daily consumption — at 112.2 Bcf — remained flat too, with an increase in residential/commercial gas usage offset by a dip in power demand.  

Natural Gas Price Drifts Lower

Natural gas prices fell last week following the lower-than-expected inventory draw. Futures for January delivery ended Christmas Eve at $2.5180 per MMBtu on the New York Mercantile Exchange, down 6.7% from the same time previous week. The decrease in the price of natural gas is also the result of forecast models, indicating warmer-than-normal weather in the days ahead, which translates into smaller draws due to less use of heaters.

Wrap-Up

As is the norm with natural gas, changes in temperature and weather forecasts can lead to price swings. With the latest models showing bearish changes toward a less chiller outlook, prices are expected to trend lower. As it is, 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 the likes of EQT Corporation (EQT - Free Report) , SilverBow Resources (SBOW - Free Report) , Cabot Oil & Gas Corporation (COG - Free Report) , CNX Resources (CNX - Free Report) and Southwestern Energy Company (SWN - Free Report) . 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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