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Natural Gas Pushes Through $4 on Sizzling Summer Forecasts

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Natural gas prices broke the $4 threshold in trading on Thursday to finish the day at $4.003 per million British thermal units (MMBtu). That was the highest settlement since December 2018 and came despite a bearish inventory report by the U.S. Energy Department.

Stockpiles held in underground storage in the lower 48 states rose by 49 billion cubic feet (Bcf) for the week ended Jul 16 compared to the guidance of a 43 Bcf addition per the analysts surveyed by S&P Global Platts. The larger-than-expected injection reflected average, mid-summer temperatures in certain parts of the nation.

Investors shrugged off the bearish inventory numbers and instead focused on the prospect of more weather-related demand through the remainder of summer. The markets are responding primarily to bullish forecasts, as expectations of warmer days ahead are providing a boost to prices.

The latest models are anticipating higher temperature-driven consumption in August with air conditioners likely to run at full throttle. With natural gas being the primary U.S. power plant fuel, prices have soared.

As a matter of fact, in most parts of the country, record-breaking heat has led to a higher power burn (or cooling demand) for the fuel. With healthy LNG export likely to provide further support to U.S. natural gas futures, the price action continues to be favorable.

Meanwhile, current natural gas stocks — at 2,678 billion cubic feet (Bcf) — are 532 Bcf (16.6%) below the 2020 level at this time and 176 Bcf (6.2%) lower than the five-year (2016-2020) average. The low stockpile levels have also buoyed the price of the energy commodity with the apprehension that the market might enter the winter withdrawal season with supplies in storage well below normal.

Overall, given natural gas’ fundamental set-up, prices are expected to stay strong. This should aid gas-weighted producers like SilverBow Resources (SBOW - Free Report) , Range Resources Corporation (RRC - Free Report) and Antero Resources (AR - Free Report) . SilverBow and Range Resources sport a Zacks Rank #1 (Strong Buy), while Antero carries a Zacks Rank #2 (Buy).

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

Over 30 days, SilverBow has seen the Zacks Consensus Estimate for 2021 increase 3.2%. 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.

Range Resources has a strong footing in the prolific Appalachian Basin. In the gas-rich resource, the upstream firm has huge inventories of low-risk drilling sites that are likely to provide production for several decades. Over 30 days, Range Resources has seen the Zacks Consensus Estimate for 2021 increase 11.2%.

Antero Resources’ asset base — primarily focused on natural gas — is also concentrated on the Appalachian Basin. Antero Resources has amassed approximately 513,000 net acres of rich properties located in West Virginia and Ohio. Over 30 days, the firm has seen the Zacks Consensus Estimate for 2021 increase 10.6%.

For natural gas operators like Comstock Resources (CRK - Free Report) and EQT Corporation (EQT - Free Report) , investors should preferably wait for a better entry point before buying their shares. Both companies carry a Zacks Rank #3 (Hold).