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Natural Gas Gains 23% in June: Will the Momentum Continue?
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Hot weather forecasts combined with receding production and healthy LNG flows increased natural gas prices by more than 23% in June as the commodity ended Friday at $2.80 on the New York Mercantile Exchange.
Despite the impressive June performance, the market hasn't been kind to natural gas in 2023, with the commodity trading considerably lower year to date and briefly breaking below the $2 threshold for the first time since 2020. Moreover, a nice cushion in supplies will usually keep any rally relatively short-lived.
At this time, we advise investors to focus on stocks like Chesapeake Energy (CHK - Free Report) and Cheniere Energy (LNG - Free Report) .
3 Reasons for Natural Gas’ June Spike
As is the norm with natural gas, changes in temperature and weather forecasts can lead to price swings. With forecasts for hotter-than-usual weather in the next few weeks, people are expected to crank up their air conditioning. Consequently, the amount of natural gas required to generate electricity generators should go up.
In addition to bullish weather conditions, natural gas has been pushed higher by a projected brake in upstream activity. According to energy services provider Baker Hughes, U.S. natural gas rig count — a pointer to where production is headed — is now at its lowest since February 2022. Industry observers believe this could set the stage for a pullback in near-term drilling and supplies ahead of the impending summer cooling demand.
Meanwhile, a stable demand catalyst in the form of continued strong LNG feedgas deliveries is also supporting natural gas. LNG shipments for export from the United States have been elevated for months on the back of environmental reasons and Europe’s endeavor to move away from its dependence on Russian natural gas supplies following the war in Ukraine.
Final Thoughts
While recent withdrawals have helped to reduce the levels of natural gas in storage, it still remains bloated. At 2,805 billion cubic feet (Bcf), stockpiles held in underground storage in the lower 48 states were 566 Bcf (25.3%) above the 2022 level at this time and 358 Bcf (14.6%) higher than the five-year average.
Therefore, it is not surprising that in spite of last month’s rally, the natural gas market is down 37% so far this year. Based on several factors, the space is currently quite unpredictable and spooked by the sudden changes in weather and production pattern. As such, investors are clueless about what to do. As of now, the lingering uncertainty over the fuel means that they should preferably opt for holding on to fundamentally strong stocks like Chesapeake Energy and Cheniere Energy.
Chesapeake Energy: It has a premier portfolio with more than 15 years of inventory spread over some 2,200 locations. Around 90% of its total output comprises natural gas. This Zacks Rank #3 (Hold) company’s exposure to premium markets and focus on costs and margins should help it to benefit from any increase in natural gas prices.
Chesapeake beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 26.6%. Valued at around $11.2 billion, CHK has gained 1.9% in a year.
Cheniere Energy: Being the first company to receive regulatory approval to export LNG from its 2.6 billion cubic feet per day Sabine Pass terminal, Cheniere Energy certainly enjoys a distinct competitive advantage.
Cheniere Energy has a projected earnings growth rate of 452% for the current year. The Zacks Consensus Estimate for this #3 Ranked natural gas exporter’s 2023 earnings has been revised 91.8% upward over the past 60 days. LNG shares have gained 15.5% in a year.
At the same time, investors might want to sell some bottom-ranked stocks like SilverBow Resources (SBOW - Free Report) .
SilverBow Resources: It has operations across roughly 130,000 net acres in the Eagle Ford, and more than 80% of its total output comprises natural gas.
SilverBow Resources has a projected earnings growth rate of (53.3%) for the current year. Valued at $658.6 million, this Zacks Rank #5 (Strong Sell) company’s 2023 earnings have been revised 28.6% downward over the past 60 days. SBOW shares have gained 2.9% in a year.
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Natural Gas Gains 23% in June: Will the Momentum Continue?
Hot weather forecasts combined with receding production and healthy LNG flows increased natural gas prices by more than 23% in June as the commodity ended Friday at $2.80 on the New York Mercantile Exchange.
Despite the impressive June performance, the market hasn't been kind to natural gas in 2023, with the commodity trading considerably lower year to date and briefly breaking below the $2 threshold for the first time since 2020. Moreover, a nice cushion in supplies will usually keep any rally relatively short-lived.
At this time, we advise investors to focus on stocks like Chesapeake Energy (CHK - Free Report) and Cheniere Energy (LNG - Free Report) .
3 Reasons for Natural Gas’ June Spike
As is the norm with natural gas, changes in temperature and weather forecasts can lead to price swings. With forecasts for hotter-than-usual weather in the next few weeks, people are expected to crank up their air conditioning. Consequently, the amount of natural gas required to generate electricity generators should go up.
In addition to bullish weather conditions, natural gas has been pushed higher by a projected brake in upstream activity. According to energy services provider Baker Hughes, U.S. natural gas rig count — a pointer to where production is headed — is now at its lowest since February 2022. Industry observers believe this could set the stage for a pullback in near-term drilling and supplies ahead of the impending summer cooling demand.
Meanwhile, a stable demand catalyst in the form of continued strong LNG feedgas deliveries is also supporting natural gas. LNG shipments for export from the United States have been elevated for months on the back of environmental reasons and Europe’s endeavor to move away from its dependence on Russian natural gas supplies following the war in Ukraine.
Final Thoughts
While recent withdrawals have helped to reduce the levels of natural gas in storage, it still remains bloated. At 2,805 billion cubic feet (Bcf), stockpiles held in underground storage in the lower 48 states were 566 Bcf (25.3%) above the 2022 level at this time and 358 Bcf (14.6%) higher than the five-year average.
Therefore, it is not surprising that in spite of last month’s rally, the natural gas market is down 37% so far this year. Based on several factors, the space is currently quite unpredictable and spooked by the sudden changes in weather and production pattern. As such, investors are clueless about what to do. As of now, the lingering uncertainty over the fuel means that they should preferably opt for holding on to fundamentally strong stocks like Chesapeake Energy and Cheniere Energy.
Chesapeake Energy: It has a premier portfolio with more than 15 years of inventory spread over some 2,200 locations. Around 90% of its total output comprises natural gas. This Zacks Rank #3 (Hold) company’s exposure to premium markets and focus on costs and margins should help it to benefit from any increase in natural gas prices.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Chesapeake beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 26.6%. Valued at around $11.2 billion, CHK has gained 1.9% in a year.
Cheniere Energy: Being the first company to receive regulatory approval to export LNG from its 2.6 billion cubic feet per day Sabine Pass terminal, Cheniere Energy certainly enjoys a distinct competitive advantage.
Cheniere Energy has a projected earnings growth rate of 452% for the current year. The Zacks Consensus Estimate for this #3 Ranked natural gas exporter’s 2023 earnings has been revised 91.8% upward over the past 60 days. LNG shares have gained 15.5% in a year.
At the same time, investors might want to sell some bottom-ranked stocks like SilverBow Resources (SBOW - Free Report) .
SilverBow Resources: It has operations across roughly 130,000 net acres in the Eagle Ford, and more than 80% of its total output comprises natural gas.
SilverBow Resources has a projected earnings growth rate of (53.3%) for the current year. Valued at $658.6 million, this Zacks Rank #5 (Strong Sell) company’s 2023 earnings have been revised 28.6% downward over the past 60 days. SBOW shares have gained 2.9% in a year.