The U.S. Energy Department's weekly inventory release showed an in-line 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 like Anadarko Petroleum Corp. (APC), Chesapeake Energy (CHK), Encana Corp. (ECA), Devon Energy Corp. (DVN), Nabors Industries (NBR), Patterson-UTI Energy (PTEN), Helmerich & Payne (HP) and Halliburton Company (HAL).
Analysis of the Data
Stockpiles held in underground storage in the lower 48 states fell by 135 billion cubic feet (Bcf) for the week ended December 28, 2012, within the guided range (of 133–137 Bcf drawdown) as per the analysts surveyed by Platts, the energy information arm of McGraw-Hill Companies Inc. (MHP).
The decrease represents the sixth withdrawal of the 2012-2013 winter heating season after stocks hit an all-time high in early November. Moreover, the draw was higher than both last year’s withdrawal of 77 Bcf and the five-year (2007–2011) average reduction of 111 Bcf for the reported week.
However, in spite of the ‘better-than-expected’ draw during the past week, the current storage level – at 3.517 trillion cubic feet (Tcf) – is up 23 Bcf (0.7%) from the last year and 389 Bcf (12.4%) over 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 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. (UPL), Talisman Energy Inc. (TLM), Encana and Chesapeake.
Among the natural gas-associated companies mentioned above, Anadarko Petroleum, Chesapeake Energy, Ultra Petroleum, Devon Energy, Patterson-UTI Energy and Halliburton 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.
However, Talisman retains a Zacks #4 Rank, which translates into a short-term Sell rating, while Helmerich & Payne and Encana’s Zacks #2 Rank implies that the companies are likely to outperform the broader U.S. equity market over the next one to three months. On the other hand, Nabors Industries’ Zacks #5 Rank indicates a short-term Strong Sell rating.
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