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Hot Weather Predictions Lift Natural Gas to 29-Month High

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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 gained 8.7% last week to reach its highest level in almost two and half years.

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 55 billion cubic feet (Bcf) for the week ended Jun 18 compared to the guidance of a 63 Bcf addition per the analysts surveyed by S&P Global Platts. The increase was also below last year’s addition of 115 Bcf for the same corresponding week and the five-year (2016-2020) average net build of 83 Bcf.

The latest injection puts total natural gas stocks at 2,482 billion cubic feet (Bcf), which is 513 Bcf (17.1%) below the 2020 level at this time and 154 Bcf (5.8%) lower than the five-year average.

Total supply of natural gas averaged 97.8 Bcf per day, essentially unchanged on a weekly basis as higher dry production was offset by lower shipments from Canada.

Meanwhile, daily consumption edged down 0.5% to 86.5 Bcf from 86.9 Bcf in the previous week, primarily due to lower power burn (or cooling demand) partly offset by record exports to Mexico and increased LNG deliveries.

Natural Gas Rallies to $3.5

Natural gas prices trended upward last week following the lower-than-expected inventory build. Futures for July delivery ended Friday at $3.496 per million British thermal units (MMBtu) on the New York Mercantile Exchange, rising 8.7% from the previous week’s closing and marking the highest since January 2019. The increase in the price of natural gas is also the result of hotter weather predictions in the United States for the days ahead, which would translate into robust demand for the fuel. The upward momentum in LNG shipments also offered support.

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, following which prices have soared. With healthy LNG export likely to provide further support to U.S. natural gas futures, the price action continues to be bullish.

As the commodity extended its climb past a 29-month high amid signs of a tighter market, natural gas companies surged across the board. Range Resources (RRC - Free Report) , EQT Corporation (EQT - Free Report) , Antero Resources (AR - Free Report) and Cabot Oil & Gas Corporation (COG - Free Report) were all higher on Friday. Range Resources was up 3.61%, while EQT, Antero Resources and Cabot gained 2.94%, 2.59% and 1.51%, respectively. However, all these companies carry a Zacks Rank #3 (Hold), which means that investors should preferably wait for a better entry point before buying shares in them.  

If you are 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 34.4%. SilverBow controls 165,000 net acres in the Eagle Ford and around 80% of its total output comprises natural gas. SilverBow Resources’ exposure to premium markets and focus on costs and margins should help it to benefit from rising natural gas prices.

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

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