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Natural Gas Loses 3.7% 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 4% 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 Pull Smaller Than Market Expectations

Stockpiles held in underground storage in the lower 48 states fell by 52 billion cubic feet (Bcf) for the week ended Mar 5 compared to the guidance of a 65 Bcf decline. The decrease was also below the five-year (2016-2021) average net shrinkage of 89 Bcf and last year’s drop of 72 Bcf for the reported week.

The latest official data puts total natural gas stocks at 1,793 billion cubic feet (Bcf), which is 257 Bcf (12.5%) below the 2020 levels at this time and 141 Bcf (7.3%) lower than the five-year average.

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

Meanwhile, daily consumption fell 3% to 103 Bcf from 106.2 Bcf in the previous week, dragged down by a decrease in residential/commercial gas usage and a decline in power demand, partly offset by higher liquefied natural gas (LNG) exports.

Natural Gas Price Drops

Natural gas prices fell last week following the lower-than-expected inventory draw. Futures for April delivery ended Friday at $2.60 per million British thermal units (MMBtu) on the New York Mercantile Exchange, down 3.7% from the same time, previous week. The decrease in the price of natural gas is also the result of forecast models, indicating mild-to-warm weather throughout most of the United States in the days ahead, which translates into smaller draws due to less use of heaters. Finally, a rebound in domestic production from February’s winter storm-led shut-ins impacted commodity realizations.

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 warmer-than-normal outlook, prices are expected to trend lower. In fact, downside risks would continue to outweigh the upside potential unless the weather pattern flips significantly to cause an increase in natural gas usage. While growing LNG export is providing some support for a price gain, it will be weather conditions across the United States that will dictate the energy commodity’s future.

The lingering uncertainty over the 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) , Range Resources (RRC - Free Report) , Comstock Resources (CRK - Free Report) , Southwestern Energy Company (SWN - Free Report) etc. Others like SilverBow Resources (SBOW - Free Report) and Cabot Oil & Gas Corporation (COG - Free Report) are further down the pecking order, with a Zacks Rank #4 (Sell) or #5 (Strong Sell), respectively.

If you are still looking for near-term natural gas plays, Antero Resources (AR - Free Report) might be a good selection.

Antero Resources is the third-largest U.S. gas producer and a leading operator in the Appalachian basin — the most-prolific domestic gas basin — with around 515,000 net acres. More than 65% of the company’s total output is natural gas. While the company’s low-cost, high-quality inventory should ensure long-term output growth, cash flows will also receive some downside protection from attractive hedges.

The 2021 Zacks Consensus Estimate for this Zacks Rank #2 (Buy) company indicates 198.21% earnings per share growth over 2020.

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

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