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Natural Gas Storage Dives Under 5-Yr Average on Big Draw
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The U.S. Energy Department's weekly inventory release showed a big decrease in natural gas supplies – the season’s sixth successive withdrawal. Following the massive drop – the largest since February 2014 – natural gas storage has run into a deficit versus the five-year average, while price surged to a 2-year high.
About the Weekly Natural Gas Storage Report
The Weekly Natural Gas Storage Report – brought out by the Energy Information Administration (EIA) every Thursday since 2002 – includes updates on natural gas market prices, the latest storage level estimates, recent weather data and other market activities or events.
The report provides an overview of the level of reserves and their movements, thereby helping investors understand the demand/supply dynamics of natural gas. It is an indicator of current gas prices and volatility that affect businesses of natural gas-weighted companies and related support plays.
Analysis of the Data: A Massive Draw
Stockpiles held in underground storage in the lower 48 states fell by 237 billion cubic feet (Bcf) for the week ended Dec 23, 2016, just above the guidance (of 236 Bcf draw) as per the analysts surveyed by S&P Global Platts, a leading independent commodities and energy data provider.
The past week’s decline represents the sixth successive withdrawal of the 2016-2017 winter heating season after stocks hit an all-time high in November. Moreover, the decrease handily exceeded both last year’s drop of 58 Bcf and the 5-year (2011–2015) average shrinkage of 80 Bcf for the reported week.
Following the monster withdrawal, the current storage level – at 3.360 trillion cubic feet (Tcf) – is down 413 Bcf (11%) from last year and has now fallen 79 Bcf (2%) below the five-year average.
Long-Term Thesis Positive
Successive below-average builds in the recent past and now some big draws – with strong power sector consumption – has meant that the storage surplus has now turned into deficit. As a result, natural gas prices have rebounded strongly and more than doubled from the extreme lows it hit in Mar. The dramatic recovery has helped the commodity cross the key psychological level of $3.5 per MMBtu.
With winter turning out cooler than expected, natural gas demand has picked up on the back of elevated power sector consumption due to air-conditioning use. What’s more, the heating fuel is set to rise further with abnormally frigid weather predictions over the entire U.S.
Currently at a 2-year high of around 3.8 per MMBtu, prices look set to break the $4 barrier if inventories continue to fall. In general, sentiment toward natural gas is likely to become more positive in the near future as speculators bet on a chilly winter to follow the hot summer.
The price strength augurs well for natural gas drillers like Cimarex Energy Co. , EQT Corp. (EQT - Free Report) , Southwestern Energy Co. (SWN - Free Report) , Cabot Oil & Gas Corp. and Devon Energy Corp. (DVN - Free Report) .
However, each of these firms has a Zacks Rank #3 (Hold), which does not make them screaming buys.
In addition to the stocks discussed above, would you like to know about our 10 finest tickers for the entirety of 2017?
Who wouldn't? These 10 are painstakingly hand-picked from 4,400 companies covered by the Zacks Rank. They are our primary picks to buy and hold. Be among the very first to see them >>
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Natural Gas Storage Dives Under 5-Yr Average on Big Draw
The U.S. Energy Department's weekly inventory release showed a big decrease in natural gas supplies – the season’s sixth successive withdrawal. Following the massive drop – the largest since February 2014 – natural gas storage has run into a deficit versus the five-year average, while price surged to a 2-year high.
About the Weekly Natural Gas Storage Report
The Weekly Natural Gas Storage Report – brought out by the Energy Information Administration (EIA) every Thursday since 2002 – includes updates on natural gas market prices, the latest storage level estimates, recent weather data and other market activities or events.
The report provides an overview of the level of reserves and their movements, thereby helping investors understand the demand/supply dynamics of natural gas. It is an indicator of current gas prices and volatility that affect businesses of natural gas-weighted companies and related support plays.
Analysis of the Data: A Massive Draw
Stockpiles held in underground storage in the lower 48 states fell by 237 billion cubic feet (Bcf) for the week ended Dec 23, 2016, just above the guidance (of 236 Bcf draw) as per the analysts surveyed by S&P Global Platts, a leading independent commodities and energy data provider.
The past week’s decline represents the sixth successive withdrawal of the 2016-2017 winter heating season after stocks hit an all-time high in November. Moreover, the decrease handily exceeded both last year’s drop of 58 Bcf and the 5-year (2011–2015) average shrinkage of 80 Bcf for the reported week.
Following the monster withdrawal, the current storage level – at 3.360 trillion cubic feet (Tcf) – is down 413 Bcf (11%) from last year and has now fallen 79 Bcf (2%) below the five-year average.
Long-Term Thesis Positive
Successive below-average builds in the recent past and now some big draws – with strong power sector consumption – has meant that the storage surplus has now turned into deficit. As a result, natural gas prices have rebounded strongly and more than doubled from the extreme lows it hit in Mar. The dramatic recovery has helped the commodity cross the key psychological level of $3.5 per MMBtu.
With winter turning out cooler than expected, natural gas demand has picked up on the back of elevated power sector consumption due to air-conditioning use. What’s more, the heating fuel is set to rise further with abnormally frigid weather predictions over the entire U.S.
Currently at a 2-year high of around 3.8 per MMBtu, prices look set to break the $4 barrier if inventories continue to fall. In general, sentiment toward natural gas is likely to become more positive in the near future as speculators bet on a chilly winter to follow the hot summer.
The price strength augurs well for natural gas drillers like Cimarex Energy Co. , EQT Corp. (EQT - Free Report) , Southwestern Energy Co. (SWN - Free Report) , Cabot Oil & Gas Corp. and Devon Energy Corp. (DVN - Free Report) .
However, each of these firms has a Zacks Rank #3 (Hold), which does not make them screaming buys.
In case you are looking for energy names for your portfolio, one could opt for Abraxas Petroleum Corp. (AXAS - Free Report) . It has a Zacks Rank #1 (Strong Buy). Shares of Abraxas Petroleum surged nearly 122% over the past six months, significantly outpacing the 14% gain for the Zacks categorized Oil and Gas - Exploration and Production – U.S. industry. You can see the complete list of today’s Zacks #1 Rank stocks here.
Zacks' Top 10 Stocks for 2017
In addition to the stocks discussed above, would you like to know about our 10 finest tickers for the entirety of 2017?
Who wouldn't? These 10 are painstakingly hand-picked from 4,400 companies covered by the Zacks Rank. They are our primary picks to buy and hold. Be among the very first to see them >>