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Weekly Natural Gas Futures End Flat After In-Line EIA Data

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The U.S. Energy Department's weekly inventory release showed that natural gas supplies increased as expected. The neutral inventory numbers notwithstanding, futures settled with a slight loss week over week, overwhelmed by predictions of insipid demand.

In fact, 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. At this time, we advise investors to focus on stocks like Chesapeake Energy (CHK - Free Report) , Coterra Energy (CTRA - Free Report) and Cheniere Energy (LNG - Free Report) .

EIA Reports an In-Line Build

Stockpiles held in underground storage in the lower 48 states rose 64 billion cubic feet (Bcf) for the week ended Sep 15, tallying with the guidance of a survey conducted by S&P Global Commodity Insights. The build compared with the five-year (2018-2022) average net injection of 84 Bcf and last year’s growth of 99 Bcf for the reported week.

The latest increase puts total natural gas stocks at 3,269 Bcf, which is 410 Bcf (14.3%) above the 2022 level at this time and 183 Bcf (5.9%) higher than the five-year average.

The total supply of natural gas averaged 105.8 Bcf per day, down 1.5 Bcf per day on a weekly basis due to a decrease in dry production and lower shipments from Canada.

Meanwhile, daily consumption fell 4.3% to 93.7 Bcf from 97.9 Bcf the previous week, mainly reflecting a lower power burn, partly offset by a pickup in deliveries to LNG export terminals.

Natural Gas Prices Barely Nudge

Natural gas prices trended marginally downward last week following the expected inventory build. Futures for November delivery ended Friday at $2.6370 on the New York Mercantile Exchange, sliding 0.3% from the previous week’s closing. The decline in natural gas realization is the result of unfavorable weather predictions and likely power outages from Tropical Storm Ophelia.

As is the norm with natural gas, changes in temperature and weather forecasts can lead to price swings. With forecasts for benign weather in the days ahead, usage of the commodity to generate electricity to meet heating/cooling demand is expected to be tepid.

Apart from bearish weather conditions, natural gas has been pushed lower by the expected cooldown and power disruptions caused by the landfall of Tropical Storm Ophelia that would reduce the fuel’s demand.

However, these factors were offset by signs of curtailment in domestic output. According to energy services provider Baker Hughes, the U.S. natural gas rig count — a pointer to where production is headed — is down more than 26% from last year. Industry observers believe this could set the stage for a pullback in near-term drilling and supplies.

Meanwhile, a stable demand catalyst in the form of continued strong LNG feedgas deliveries is supporting natural gas. While falling from their April highs, 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. Furthermore, with union workers calling off strikes at LNG facilities in Australia, flows to export plants should pick up again. 

Final Thoughts

Following last week’s small decrease, the natural gas market is down 41% so far this year. Based on several factors, the space is currently quite unpredictable and spooked by the sudden changes in weather and production patterns. 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, Coterra Energy and Cheniere Energy.

Chesapeake Energy: Chesapeake has a premier portfolio with more than 15 years of inventory spread over some 2,200 locations, and 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 23.7%. Valued at around $10.9 billion, CHK has lost 9.9% in a year.

Coterra Energy: It is an independent upstream operator primarily engaged in the exploration, development and production of natural gas. Headquartered in Houston, TX, the firm owns some 183,000 net acres in the gas-producing Marcellus Shale of the Appalachian Basin. The Zacks Rank #3 company churned out an average 2,204 million cubic feet on a daily basis from these assets in 2022.

Coterra beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 9.5%. Valued at around $19.7 billion, CTRA has gained 2.9% 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 494.9% for the current year. The Zacks Consensus Estimate for this #3 Ranked natural gas exporter’s 2023 earnings has been revised 8.6% upward over the past 60 days. LNG shares have gone up 7.4% in a year.

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