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Further Dent in Natural Gas Storage

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The U.S. Energy Department's weekly inventory release showed a decrease in natural gas supplies on account of cold temperatures that spurred the commodity’s demand for heating.

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

Stockpiles held in underground storage in the lower 48 states fell by 14 billion cubic feet (Bcf) for the week ended Apr 05, 2013, lower than the guided range (of 20–24 Bcf drawdown) as per the analysts surveyed by Platts, the energy information arm of McGraw-Hill Companies Inc. .

However, the draw must be seen in light of seasonal trends that usually call for an injection during this time of the year. In this context, the latest natural gas inventory reduction was in contrast to last year’s injection of 11 Bcf and the five-year (2008–2012) average addition of 15 Bcf for the reported week. Moreover, the decrease represents the 17th successive weekly withdrawal after stocks hit an all-time high in early November last year.

Following the past week’s drop, the current storage level – at 1.673 trillion cubic feet (Tcf) – is down 804 Bcf (32.5%) from the last year and is 66 Bcf (3.8%) below the benchmark five-year average. Incidentally, last week was the first time since late September 2011 that natural gas inventories in underground storage went under the five-year average.

In recent times, cold winter weather across most parts of the country has boosted natural gas demand for space heating by residential/commercial consumers. This, coupled with flat production volumes, means that the inventory overhang is now gone, thereby driving commodity prices to its 20-month high of around $4.25 per million Btu (MMBtu) (referring to spot prices at the Henry Hub, the benchmark supply point in Louisiana).

This, in turn, is expected to buoy natural gas producers, particularly smaller players like Bill Barrett Corp. , Linn Energy LLC and Forest Oil Corp. . With an improvement in the companies’ ability to generate positive earnings surprises, they are likely to move higher from their current Zacks Rank #3 (Hold).

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