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EIA Data Helps U.S. Natural Gas Price to Climb Above $3

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The U.S. Energy Department's weekly inventory release showed a lower-than-expected increase in natural gas supplies. The encouraging inventory numbers, coupled with the prospect of more weather-related consumption and strong liquefied natural gas (“LNG”) feedgas deliveries meant that the U.S. benchmark eked out a gain last week.

Let us see what 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 98 billion cubic feet (Bcf) for the week ended May 28 compared to the guidance of a 118 Bcf addition by IHS Markit. Moreover, the increase was below last year’s addition of 103 Bcf for the same corresponding week but came above the five-year (2016-2020) average net build of 96 Bcf.

The latest injection puts total natural gas stocks at 2,313 billion cubic feet (Bcf), which is 386 Bcf (14.3%) below the 2020 levels at this time and 61 Bcf (2.6%) lower than the five-year average.

Total supply of natural gas averaged 96.6 Bcf per day, edging down 0.4% on a weekly basis due to lower shipments from Canada amid the planned maintenance-related closing of its critical pipeline, partly offset by a slight increase in dry production.

Meanwhile, daily consumption rose 1.2% to 84 Bcf from 83 Bcf in the previous week, primarily buoyed by stronger demand from the residential/commercial sector due to below-normal Memorial Day weekend temperatures in the Midwest and Northeast.

Natural Gas Price Settles Above $3

Natural gas prices trended upward last week following the lower-than-expected inventory build. Futures for July delivery ended Friday at around $3.10 per million British thermal units (MMBtu) on the New York Mercantile Exchange, rising 3.7% from the previous week’s closing. The increase in the price of natural gas is also the result of warmer weather predictions in the United States for the days ahead, which would translate into robust demand for the fuel.

Wrap-Up

As is the norm with natural gas, changes in temperature and weather forecasts can lead to price swings. The latest models are anticipating higher temperature-driven consumption, after which prices have gone up.

While the prospect of early summer demand growth is likely to drive U.S. natural gas futures higher, the bulls are facing pressure from the increase in production, which is currently at its highest weekly average since April 2020.

Healthy LNG export and strong deliveries to Mexico are also providing some support to the prices, but it will be weather conditions across the United States that will primarily dictate the energy commodity’s future.

Therefore, in the coming weeks, natural gas prices would be mostly determined by temperature levels — whether they are lower or higher than average. The heightened 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) , Antero Resources (AR - 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, SilverBow Resources (SBOW - Free Report) might be an excellent selection.

A pure-play upstream operator in the Eagle Ford Shale in South Texas, SilverBow Resources is a natural gas-focused exploration and production company. Over 60 days, the Zacks Rank #1 (Strong Buy) company has seen the Zacks Consensus Estimate for 2021 increase 39.3%. SilverBow controls 165,000 net acres in the Eagle Ford and around 80% of its total output comprises natural gas.

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

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