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Natural Gas Pulls Back as Mild Spring Weather Limits Demand

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The U.S. Energy Department's weekly inventory release showed a lower-than-expected increase in natural gas supplies. Despite the encouraging inventory numbers, the prospect of moderate spring temperatures and dull power demand pulled back the U.S. benchmark around 4.3% 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 Build Smaller Than Market Expectations

Stockpiles held in underground storage in the lower 48 states rose by 20 billion cubic feet (Bcf) for the week ended Apr 2 compared to the guidance of a 27 Bcf addition. The increase was also below last year’s addition of 30 Bcf for the reported week but came above the five-year (2016-2021) average net build of 8 Bcf.

The second injection of the year puts total natural gas stocks at 1,784 billion cubic feet (Bcf), which is 235 Bcf (11.6%) below the 2020 levels at this time and 24 Bcf (1.3%) lower than the five-year average.

Total supply of natural gas averaged 96.7 Bcf per day, edging up 0.6% on a weekly basis due to an increase in dry production and higher shipments from Canada.

Meanwhile, daily consumption fell 1.9% to 90.7 Bcf from 92.5 Bcf in the previous week, dragged down by weaker demand from the residential/commercial, industrial and power sectors, and lower exports to Mexico.

Natural Gas Price Drops Despite Bullish Inventory Numbers

Natural gas prices fell last week despite the lower-than-expected inventory build. Futures for May delivery ended Friday at $2.53 per million British thermal units (MMBtu) on the New York Mercantile Exchange, down 4.3% from the previous week’s closing. The decrease in the price of natural gas is the result of forecast models, indicating mild spring weather in the days ahead, which would translate into bigger inventory additions due to tepid requirements for heating and cooling.

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 light spring demand, prices have trended lower.

In fact, with winter drawing to a close and the so-called “‘shoulder season”’ of typically low natural gas demand in the spring settling in, prices could be in for more downside risks than upside potential. While growing LNG export is providing some support to the prices, 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) , SilverBow Resources (SBOW - Free Report) , Southwestern Energy Company (SWN - Free Report) , Cabot Oil & Gas Corporation (COG - Free Report) etc.

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 244.64% earnings per share growth over 2020.

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

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