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The U.S. Energy Department's weekly inventory release showed an above-average increase in natural gas supplies. However, bullish weather forecasts and lower-than-expected power loss from Hurricane Irma propped up prices.

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 Larger-than-Expected Rise in Storage

Stockpiles held in underground storage in the lower 48 states rose by 91 billion cubic feet (Bcf) for the week ended Sep 8, 2017, marginally above the guidance (of 88 Bcf gain) as per the analysts surveyed by S&P Global Platts, a leading independent commodities and energy data provider.

Worse, the increase was higher than both last year’s addition of 58 Bcf and the 5-year (2012-2016) average net injection of 63 Bcf for the reported week. This caused the current storage level – at 3.311 trillion cubic feet (Tcf) – to widen its surplus to the five-year average to 43 Bcf (1.3%), while stocks are still 179 Bcf (5.1%) below the year-ago figure.

Fundamentally speaking, supply remained unchanged on a weekly basis at 79.2 Bcf per day, while daily natural gas consumption declined 4.1% to 63.8 Bcf. The flattish supply could be attributed to stagnant dry natural gas production. On the demand side, the fall was triggered by sharply lower power consumption in Florida on the back of cool weather and demand loss associated with Hurricane Irma. This was partly offset by elevated residential/commercial demand due to high temperatures in parts of the Northeast and Midwest.

Futures End Up Despite Bearish EIA Data

Shrugging off EIA’s latest commentary, natural gas prices rose 4.6% last week to settle at $3.024 per MMBtu on Friday as investors chose to concentrate on warmer-than-normal weather predictions (translating into higher cooling gas demand) toward the end of September. Prices were further supported by suggestions that the demand destruction from Irma was less than expected.

Positive Long-Term Thesis

Despite occasional hiccups, 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 LNG and Mexican exports, 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 five-year average in the near future, with deficits piling up later on. Over time, these secular tailwinds are likely to support natural gas sentiment and price.

The perceived price strength augurs well for natural gas-heavy upstream companies like Rice Energy Inc. , 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) .

As of now, we expect the fuel to continue to be range bound around $3 with little chance of any drastic increase.

Want to Own a Natural Gas Stock Now?

If you are looking for a near term natural gas play, Range Resources Corp. (RRC - Free Report) may be a good selection. This company actually has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Headquartered in Fort Worth, TX, Range Resources is an independent oil and gas company, engaged in the exploration, development and acquisition of oil and gas properties primarily in the southwestern, Appalachian and Gulf Coast regions of the U.S. The 2017 Zacks Consensus Estimate for this company is 48 cents, representing some 1,505.1% earnings per share growth over 2016. Next year’s average forecast is 64 cents, pointing to another 32.4% growth.

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