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Natural Gas Notched Its First Gain in Four Weeks: Here's Why
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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 restricted production meant that the U.S. benchmark gained more than 5% last week to tally its first increase in a month.
But despite the bullish report, natural gas remains under some pressure from the extended outage at the nation’s biggest LNG export plant at Freeport that would reduce the fuel’s shipments abroad. In this context, it would be wise to build a position in quality names such as SilverBow Resources (SBOW - Free Report) , Cheniere Energy (LNG - Free Report) , Antero Resources (AR - Free Report) and Comstock Resources (CRK - Free Report) .
EIA Reports a Build Smaller Than Market Expectations
Stockpiles held in underground storage in the lower 48 states rose by 60 billion cubic feet (Bcf) for the week ended Jul 1 compared to the guidance of a 73 Bcf addition per the analysts surveyed by S&P Global Platts. While the increase was above last year’s injection of 25 Bcf for the same corresponding week, it was in line with the five-year (2017-2021) average net build.
The latest increment puts total natural gas stocks at 2,311 Bcf, which is 261 Bcf (10.1%) below the 2021 level at this time and 322 Bcf (12.2%) lower than the five-year average.
The total supply of natural gas averaged 101.7 Bcf per day, up a marginal 0.1 Bcf per day on a weekly basis, primarily due to slightly higher dry production.
Meanwhile, daily consumption rose 2.2% to 93.4 Bcf from 91.4 Bcf in the previous week, mainly reflecting stronger power burn and increased deliveries.
Natural Gas Registers First Weekly Increase in a Month
Natural gas prices trended upward last week following the lower-than-expected inventory build. Futures for August delivery ended Friday at $6.034 on the New York Mercantile Exchange, rising around 5.3% from the previous week’s closing. The increase in natural gas realization — first in four weeks — is also the result of sweltering temperatures and strong power burn.
Final Thoughts
As is the norm with natural gas, changes in temperature and weather forecasts can lead to price swings. The latest models anticipate strong temperature-driven consumption over the next few weeks (especially in and around Texas), which is a positive for prices.
Looking at the supply side, production levels have consistently stayed below the peak achieved in early-2022 and late-2021. Even last week, daily natural gas output averaged 96 Bcf, well under the 97 Bcf high achieved during the final months of 2021. With the big upstream operators concentrating on free cash flow over production, volumes seem unlikely to recover soon. In other words, with demand outpacing supply, inventories have remained low — now more than 12% lower than the five-year average.
Natural gas also remained supported by a stable demand catalyst in the form of continued strong liquefied natural gas (LNG - Free Report) feedgas deliveries. LNG shipments for export from the United States have been robust for months on the back of environmental reasons and record-high prices of the super-chilled fuel elsewhere. Now, with the Russia-Ukraine conflict, LNG has become even more coveted, with an increasing number of countries vying for the American-made fuel to replace supplies from Moscow. This means that LNG deliveries are poised to rise further.
However, the possibility of protracted downtime associated with the fire breakout at the Freeport LNG export plant in Texas has drowned out most of the positives as of now. The Quintana, TX facility — responsible for around 15% of the U.S, liquefaction capacity — was knocked offline by the Jun 8 blast and is expected to only partially restart in October. Consequently, some of the LNG cargoes due for export will have to be diverted to the domestic market despite huge demand abroad.
Investing Strategy
With the natural gas market being unpredictable and spooked by the Freeport LNG outage, investors are quite unsure of what to do. As of now, the lingering uncertainty over the fuel means that investors should preferably opt for fundamentally strong stocks like SilverBow Resources, Cheniere Energy, Antero Resources and Comstock Resources that also carry a Zacks Rank of #1 (Strong Buy) or 2 (Buy).
SilverBow Resources is valued at around $505.7 million. SBOW — carrying a Zacks Rank of 1 — reported EPS of $2.79 in May, reflecting a 25.1% surprise over consensus.
SBOW beat the Zacks Consensus Estimate for earnings in each of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 20.3%, on average. SilverBow shares have gained 28.1% in a year.
Cheniere Energy is valued at around $32.5 billion. The #1 Ranked LNG reported EPS of $7.35 in the first quarter, reflecting a 120.1% surprise over consensus.
Cheniere Energy has a projected earnings growth rate of 267.5% for the current year. The Zacks Consensus Estimate for the natural gas exporter’s 2022 earnings has been revised 39.9% upward over the past 90 days. LNG shares have climbed 45.2% in a year.
Antero Resources is valued at some $9.6 billion. AR reported EPS of $1.15 in the first quarter, reflecting a 7.5% surprise over consensus.
The 2022 Zacks Consensus Estimate for Antero Resources indicates 425% earnings per share growth over 2021. AR currently carries a Zacks Rank #1. Meanwhile, the company has seen its shares increase around 103.7% in a year.
Comstock Resources has a projected earnings growth rate of 229.3% for the current year. CRK is currently a Zacks #2 Ranked stock.
The Zacks Consensus Estimate for Comstock Resources’ 2022 earnings has been revised 16.8% upward over the past 60 days. CRK shares have surged around 89.6% in a year.
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Natural Gas Notched Its First Gain in Four Weeks: Here's Why
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 restricted production meant that the U.S. benchmark gained more than 5% last week to tally its first increase in a month.
But despite the bullish report, natural gas remains under some pressure from the extended outage at the nation’s biggest LNG export plant at Freeport that would reduce the fuel’s shipments abroad. In this context, it would be wise to build a position in quality names such as SilverBow Resources (SBOW - Free Report) , Cheniere Energy (LNG - Free Report) , Antero Resources (AR - Free Report) and Comstock Resources (CRK - Free Report) .
EIA Reports a Build Smaller Than Market Expectations
Stockpiles held in underground storage in the lower 48 states rose by 60 billion cubic feet (Bcf) for the week ended Jul 1 compared to the guidance of a 73 Bcf addition per the analysts surveyed by S&P Global Platts. While the increase was above last year’s injection of 25 Bcf for the same corresponding week, it was in line with the five-year (2017-2021) average net build.
The latest increment puts total natural gas stocks at 2,311 Bcf, which is 261 Bcf (10.1%) below the 2021 level at this time and 322 Bcf (12.2%) lower than the five-year average.
The total supply of natural gas averaged 101.7 Bcf per day, up a marginal 0.1 Bcf per day on a weekly basis, primarily due to slightly higher dry production.
Meanwhile, daily consumption rose 2.2% to 93.4 Bcf from 91.4 Bcf in the previous week, mainly reflecting stronger power burn and increased deliveries.
Natural Gas Registers First Weekly Increase in a Month
Natural gas prices trended upward last week following the lower-than-expected inventory build. Futures for August delivery ended Friday at $6.034 on the New York Mercantile Exchange, rising around 5.3% from the previous week’s closing. The increase in natural gas realization — first in four weeks — is also the result of sweltering temperatures and strong power burn.
Final Thoughts
As is the norm with natural gas, changes in temperature and weather forecasts can lead to price swings. The latest models anticipate strong temperature-driven consumption over the next few weeks (especially in and around Texas), which is a positive for prices.
Looking at the supply side, production levels have consistently stayed below the peak achieved in early-2022 and late-2021. Even last week, daily natural gas output averaged 96 Bcf, well under the 97 Bcf high achieved during the final months of 2021. With the big upstream operators concentrating on free cash flow over production, volumes seem unlikely to recover soon. In other words, with demand outpacing supply, inventories have remained low — now more than 12% lower than the five-year average.
Natural gas also remained supported by a stable demand catalyst in the form of continued strong liquefied natural gas (LNG - Free Report) feedgas deliveries. LNG shipments for export from the United States have been robust for months on the back of environmental reasons and record-high prices of the super-chilled fuel elsewhere. Now, with the Russia-Ukraine conflict, LNG has become even more coveted, with an increasing number of countries vying for the American-made fuel to replace supplies from Moscow. This means that LNG deliveries are poised to rise further.
However, the possibility of protracted downtime associated with the fire breakout at the Freeport LNG export plant in Texas has drowned out most of the positives as of now. The Quintana, TX facility — responsible for around 15% of the U.S, liquefaction capacity — was knocked offline by the Jun 8 blast and is expected to only partially restart in October. Consequently, some of the LNG cargoes due for export will have to be diverted to the domestic market despite huge demand abroad.
Investing Strategy
With the natural gas market being unpredictable and spooked by the Freeport LNG outage, investors are quite unsure of what to do. As of now, the lingering uncertainty over the fuel means that investors should preferably opt for fundamentally strong stocks like SilverBow Resources, Cheniere Energy, Antero Resources and Comstock Resources that also carry a Zacks Rank of #1 (Strong Buy) or 2 (Buy).
You can see the complete list of today’s Zacks #1 Rank stocks here.
SilverBow Resources is valued at around $505.7 million. SBOW — carrying a Zacks Rank of 1 — reported EPS of $2.79 in May, reflecting a 25.1% surprise over consensus.
SBOW beat the Zacks Consensus Estimate for earnings in each of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 20.3%, on average. SilverBow shares have gained 28.1% in a year.
Cheniere Energy is valued at around $32.5 billion. The #1 Ranked LNG reported EPS of $7.35 in the first quarter, reflecting a 120.1% surprise over consensus.
Cheniere Energy has a projected earnings growth rate of 267.5% for the current year. The Zacks Consensus Estimate for the natural gas exporter’s 2022 earnings has been revised 39.9% upward over the past 90 days. LNG shares have climbed 45.2% in a year.
Antero Resources is valued at some $9.6 billion. AR reported EPS of $1.15 in the first quarter, reflecting a 7.5% surprise over consensus.
The 2022 Zacks Consensus Estimate for Antero Resources indicates 425% earnings per share growth over 2021. AR currently carries a Zacks Rank #1. Meanwhile, the company has seen its shares increase around 103.7% in a year.
Comstock Resources has a projected earnings growth rate of 229.3% for the current year. CRK is currently a Zacks #2 Ranked stock.
The Zacks Consensus Estimate for Comstock Resources’ 2022 earnings has been revised 16.8% upward over the past 60 days. CRK shares have surged around 89.6% in a year.