The U.S. Energy Department's weekly inventory release showed a smaller-than-expected decrease in natural gas supplies. Despite this drawdown, gas stocks continue to remain bloated, reflecting low demand amid robust onshore output.
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 172 billion cubic feet (Bcf) for the week ended Jan 18, 2013, lower than the guided range (of 173–177 Bcf drawdown) as per the analysts surveyed by Platts, the energy information arm of McGraw-Hill Companies Inc. (MHP).
The decrease represents the ninth withdrawal of the 2012-2013 winter heating season after stocks hit an all-time high in early November last year. Though the draw was lower than the five-year (2008–2012) average reduction of 176 Bcf for the reported week, it exceeded last year’s withdrawal of 162 Bcf.
Following the past week’s reduction, the current storage level – at 2.996 trillion cubic feet (Tcf) – is down 157 Bcf (5.0%) from the last year but is still 320 Bcf (12.0%) above the five-year average.
In fact, natural gas inventories in underground storage have persistently exceeded the five-year average since late September 2011 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 couple of years or so, as production from dense rock formations (shale) – through novel techniques of horizontal drilling and hydraulic fracturing – remain robust, thereby overwhelming demand.
However, with the U.S. winter set to be colder than the unusually warm last one, we might expect some balancing of the commodity’s supply/demand disparity on the back of its more normalized use for space heating by residential/commercial consumers.
This, in turn, could improve the prices and buoy natural gas producers, particularly smaller players like Quicksilver Resources Inc. (KWK), WPX Energy Inc. (WPX) and Forest Oil Corp. (FST). With an improvement in the companies’ ability to generate positive earnings surprises, they can then move higher from their current Zacks Rank #3 (Hold).
I didn't see the report, but assumed it was bad from the morning price drop. Here's today's news:
"Natural gas futures added to sharp losses during U.S. morning hours on Thursday, after a report from the U.S. Energy Information Administration showed natural gas supplies fell less-than-expected last week.
On the New York Mercantile Exchange, natural gas futures for delivery in February traded at USD3.253 per million British thermal units during U.S. morning trade, down 2.45% on the day.
It earlier fell by as much as 2.7% to trade at a session low of USD3.244 per million British thermal units.
The January contract traded at USD3.327 prior to the release of the U.S. Energy Information Administration report.
The U.S. Energy Information Administration said in its weekly report that natural gas storage in the U.S. in the week ended January 25 fell by 194 billion cubic feet, compared to expectations for a drop of 206 billion cubic feet.
Inventories fell by 149 billion cubic feet in the same week a year earlier, while the five-year average change for the week is a decline of 178 billion cubic feet.
Total U.S. natural gas storage stood at 2.802 trillion cubic feet as of last week. Stocks were 202 billion cubic feet less than last year at this time and 304 billion cubic feet above the five-year average of 2.498 trillion cubic feet for this time of year.
The report showed that in the East Region, stocks were 102 billion cubic feet above the five-year average, following net withdrawals of 129 billion cubic feet.
Stocks in the Producing Region were 153 billion cubic feet above the five-year average of 860 billion cubic feet after a net withdrawal of 47 billion cubic feet.
Meanwhile, natural gas traders continued to closely track weather forecasts for the next few weeks in an attempt to gauge the strength of winter heating demand.
Updated weather forecasts released earlier called for above-normal readings for most of the U.S. with near-normal temperatures along both coasts.
Bearish speculators are betting on the mild weather reducing winter demand for the heating fuel.
The heating season from November through March is the peak demand period for U.S. gas consumption. Nearly 50% of all U.S. households use gas for heating.