Market has recently been absorbed with the latest news of OPEC deal to cut oil production, which has helped crude prices rally back over $50 per barrel. While this is definitely good news, let’s turn our focus on natural gas that is going through equally exciting times.
The commodity is seeing increased demand with the advent of winter, leading to increase in prices. It goes without saying that it is time for natural gas exploration and production players to celebrate.
Over the last few years, a quiet revolution has been reshaping the energy business in the U.S. The success of ‘shale gas’ – natural gas trapped within dense sedimentary rock formations or shale formations – has transformed domestic energy supply, with a potentially inexpensive and abundant new source of fuel for the world’s largest energy consumer.
With the advent of hydraulic fracturing (or 'fracking') – a method used to extract natural gas by blasting underground rock formations with a mixture of water, sand and chemicals – shale gas production is now booming in the U.S. Coupled with sophisticated horizontal drilling equipment that can drill and extract gas from shale formations, the new technology is being hailed as a breakthrough in U.S. energy supplies, playing a key role in boosting domestic natural gas reserves. As a result, once faced with a looming deficit, natural gas is now available in abundance.
Price Weakness in Early 2016
With production from the major shale plays remaining strong and the commodity’s demand failing to keep pace with this supply surge, natural gas prices hit 17-year lows of around $1.6 per million British thermal units (MMBtu) in the first quarter. The glut was further exacerbated by lackluster industrial requirement over the past few years.
Since then, successive below-average builds on the back of warmer temperature across the country followed by the recent start of the withdrawal season, has been cutting into the year-over-year storage surplus. Statistically speaking, the current storage level – at around 4 trillion cubic feet (Tcf) is up only slightly from last year and is just 6% above the five-year average. As a result, natural gas prices have rebounded strongly and doubled from the extreme lows it hit in March. The dramatic recovery has helped the commodity stay above the key psychological level of $3 per MMBtu
Most importantly, the commodity settled at $3.654 per MMBtu as of Dec 5 – the highest level since Dec 2014. Here’s why.
Finally, we feel the chills of winter. In fact, as per the new forecast, lower-than-average temperature is extending rapidly from shore to shore of the U.S. This has definite improved the outlook for natural gas prices as we know that with the advent of winter almost half of the homes in the U.S. need to burn natural gas for heating purposes.
Natural Gas Stocks on Fire
The increased demand for natural gas is already reflected in the price of the commodity. There is no doubt that companies involved in the exploration and production of natural gas could sell the commodity at higher prices. Here we have employed our proprietary screening model to select prospective stocks that are worth watching.
Based in Houston, TX, Southwestern Energy Co. (SWN - Free Report) engages in the exploration, development and production of natural gas in the U.S. The company is able to beat the Zacks Consensus Estimate in three of the last four quarters with an average beat of 19.55%.
The Zacks Rank #3 (Hold) company also outperformed the broader industry in the last one month as witnessed in the price chart. The company gained almost 33%, while the Zacks categorized Oil & Gas-U.S Exploration and Production industry improved only 15%.
Cabot Oil & Gas Corp. (COG - Free Report) , based in Houston, TX, is an independent oil and gas exploration company with producing properties, mainly in continental U.S. Cabot focuses on high-impact natural gas-focused drilling in the Marcellus Shale and supplements it with Eagle Ford-based liquids program in Texas.
The company currently carries a Zacks Rank #3. It has also surpassed the Zacks categorized Oil & Gas-U.S Exploration and Production industry by improving almost 16% over the last four weeks.
Based in Fort Worth, TX, Range Resources Corp. (RRC - Free Report) is an independent oil and gas company, engaged in the exploration, development and acquisition of natural gas properties primarily in the southwestern, Appalachian and Gulf Coast regions of the U.S.
Range Resources currently carries a Zacks Rank #3 and is expected to rise more than 55% in the current year. The company also outperformed the Zacks categorized Oil & Gas-U.S Exploration and Production industry after increasing almost 21%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Rice Energy Inc. based in Canonsburg, PA is involved in the exploitation and development of natural gas resources in the Appalachian Basin. For the current year, the company will likely improve more than 233%.
Presently, the company carries a Zacks Rank #3 and has managed to surpass the Zacks categorized Oil & Gas-U.S Exploration and Production industry after gaining more than 15%.
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