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The U.S. Energy Department's weekly inventory release showed a smaller-than-expected increase in natural gas supplies, following which the commodity traded up to its highest finish of the month. However, worries over the fuel’s steady production growth offset the gains and kept prices in check.

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 Smaller-than-Expected Rise in Storage

Stockpiles held in underground storage in the lower 48 states rose by 78 billion cubic feet (Bcf) for the week ended June 9, 2017, below the guidance (of 89 Bcf gain) as per the analysts surveyed by S&P Global Platts, a leading independent commodities and energy data provider.

While the increase was higher than last year’s addition of 68 Bcf, it was under the 5-year (2012-2016) average injection of 87 Bcf for the reported week. 

Following past week’s smaller-than-expected climb, the current storage level – at 2.709 trillion cubic feet (Tcf) – is now 322 Bcf (10.6%) lower than the year-ago figure, although stocks are still 228 Bcf (9.2%) above the five-year average. 

The bullish inventory numbers spurred a natural gas rally on Thursday with the commodity settling at its highest since May 31. However, natural gas gave up all its gains on Friday as investors took note of steadily rising U.S. production over the past two months. As a result, natural gas ended Friday at $3.037 per MMBtu – virtually unchanged from the previous week.

Positive Long-Term Thesis

As of now, the demand situation looks promising with hot conditions prevailing in certain U.S. pockets and power generators burning more gas to meet intensifying cooling demand.

In any case, long-term fundamentals for the commodity continue to be supportive on the back of structural imbalances. While domestic natural gas production is expected to rebound this year, the growing use of liquefied natural gas (or LNG), booming exports to Mexico, replacing coal-fired power plants and higher demand from industrial projects will likely take care of the increased output. The resulting effect will ensure natural gas storage keeping pace with the 5-year average in the near future, with deficits piling up later on.

Over the summer, these secular tailwinds are likely to have a positive impact on natural gas sentiment and price.

Which Stocks to Bet On

The perceived price strength augurs well for natural gas-heavy upstream companies like Rice Energy Inc. (RICE - Free Report) , Chesapeake Energy Corp. (CHK - Free Report) , Southwestern Energy Co. (SWN - Free Report) , WPX Energy Inc. (WPX - Free Report) , Cabot Oil & Gas Corp. (COG - Free Report) and EQT Corp. (EQT - Free Report) .

However, each of these firms has a Zacks Rank #3 (Hold), which means that investors should preferably wait for a better entry point before buying shares in them.

In case you are looking for energy names for your portfolio, one could opt for Canadian Natural Resources Ltd. (CNQ - Free Report) . It has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Calgary, Alberta-based Canadian Natural Resources is engaged in the acquisition, development and exploitation of crude oil and natural gas properties. The 2017 Zacks Consensus Estimate for this company is $1.31, representing some 725% earnings per share growth over 2016. Next year’s average forecast is $2.52, pointing to another 92% growth.

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