Back to top

Image: Bigstock

Natural Gas Cools Off on Record Output, Weather Forecast

Read MoreHide Full Article

The U.S. Energy Department's weekly inventory release showed an increase in natural gas supplies that were higher than the five-year average but came below the year-ago build. Following the mixed inventory numbers, futures settled with a loss week over week, overwhelmed by high production and predictions of insipid weather-related 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 Range Resources (RRC - Free Report) , Coterra Energy (CTRA - Free Report) and Cheniere Energy (LNG - Free Report) .

EIA Reports a 60 Bcf Build

Stockpiles held in underground storage in the lower 48 states rose 60 billion cubic feet (Bcf) for the week ended Nov 10. The build compared with the five-year (2018-2022) average net injection of 20 Bcf and last year’s growth of 66 Bcf for the reported week.

The latest increase puts total natural gas stocks at 3,833 Bcf, which is 198 Bcf (5.4%) above the 2022 level and 203 Bcf (5.6%) higher than the five-year average.

The total supply of natural gas averaged 111.1 Bcf per day, up 1 Bcf per day on a weekly basis due to higher shipments from Canada and an increase in dry production.

Meanwhile, daily consumption rose to 111.3 Bcf from 104.6 Bcf in the previous week, mainly reflecting increased residential/commercial usage and higher power burn.

Natural Gas Prices Finish Lower

Natural gas prices trended downward last week following the latest inventory build. Futures for December delivery ended Friday at $2.960 on the New York Mercantile Exchange, retreating some 2% from the previous week’s closing. The decrease in natural gas realization is the result of record output and mixed weather predictions.

As is the norm with natural gas, changes in temperature and weather forecasts can lead to price swings. With forecasts for above-normal temperature in the West offsetting the cooler weather elsewhere, usage of the commodity to generate electricity is expected to be tepid.

Moreover, despite record-high lower-48 natural gas production, there are 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 27% 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 due to environmental reasons and Europe’s endeavor to move away from its dependence on Russian natural gas supplies due to the war in Ukraine. Furthermore, with union workers planning to resume strikes at LNG facilities in Australia, flows to export plants might be threatened, thereby driving up commodity prices. 

Final Thoughts

Following last week’s decrease, the natural gas market is down almost 34% 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 Range Resources, Coterra Energy and Cheniere Energy.

Range Resources: RRC is a leading operator in the prolific Appalachian Basin — a premier natural gas play — with huge inventories of low-risk drilling sites that are likely to provide production for several decades. About 68% of the company’s total output is natural gas.

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

Range Resources beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, with the average being 33.6%. Valued at around $8.1 billion, RRC has gained 19.5% 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 of 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 11.8%. Valued at around $20.1 billion, CTRA has edged up 1.4% 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 565.8% for the current year. The Zacks Consensus Estimate for this #3 Ranked natural gas exporter’s 2023 earnings has been revised 11.9% upward over the past 60 days. LNG shares have gone up 5.5% in a year.

See More Zacks Research for These Tickers

Normally $25 each - click below to receive one report FREE:

Range Resources Corporation (RRC) - free report >>

Cheniere Energy, Inc. (LNG) - free report >>

Coterra Energy Inc. (CTRA) - free report >>

Published in