The U.S. Energy Department's weekly inventory release showed a larger-than-expected decrease in natural gas supplies on account of the advent of cold weather that prompted the commodity’s brisk use for space heating by residential/commercial consumers. The storage withdrawal – the second for the winter heating season – has also cut the surplus relative to the last year and the five-year average.
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 like Anadarko Petroleum Corp. (APC - Analyst Report) , Chesapeake Energy (CHK - Analyst Report) , Encana Corp. (ECA - Analyst Report) , Devon Energy Corp. (DVN - Analyst Report) , Nabors Industries (NBR - Analyst Report) , Patterson-UTI Energy (PTEN - Analyst Report) , Helmerich & Payne (HP - Analyst Report) and Halliburton Company (HAL - Analyst Report) .
Analysis of the Data
Stockpiles held in underground storage in the lower 48 states fell by 38 billion cubic feet (Bcf) for the week ended November 16, 2012, higher than the guided range (of 23–27 Bcf gain) as per the analysts surveyed by Platts, the energy information arm of McGraw-Hill Companies Inc. .
The decrease represents the second withdrawal of the 2012-2013 winter heating season after stocks hit an all-time high in early November. More importantly, the weekly storage draw has trimmed the surplus relative to the benchmarks.
But in spite of the ‘better-than-expected’ draw during the past week, the current storage level – at 3.873 trillion cubic feet (Tcf) – is up 24 Bcf (0.6%) from the last year and 168 Bcf (4.5%) over the five-year average.
In fact, natural gas inventories in underground storage have persistently exceeded the five-year average since late September last year and ended the usual summer stock-building season of April through October at a record 3.923 Tcf (as of October 31, 2012).
A supply glut kept the natural gas prices under pressure during the past year or so, as production from dense rock formations (shale) – through novel techniques of horizontal drilling and hydraulic fracturing – remains robust, thereby overwhelming demand.
However, with the upcoming U.S. winter set to be colder than the unusually warm last one and domestic output likely to drop in 2013 versus 2012 on the back of natural gas players announcing drilling/volume curtailments, we might expect some balancing of the commodity’s supply/demand disparity.
This, in turn, could improve the prices and buoy natural gas producers like Ultra Petroleum Corp. , Talisman Energy Inc. , Encana and Chesapeake.
Among the natural gas-associated companies mentioned above, Halliburton retains a Zacks #4 Rank, which translates into a short-term Sell rating.
The other names are all Zacks #3 Rank (Hold) stocks, implying that these are expected to perform in line with the broader U.S. equity market over the next one to three months.