Natural Gas Supply Dwindles, Prices Do Not

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The U.S. Energy Information Administration (EIA) reported Thursday morning that U.S. natural gas stocks decreased by 152 billion cubic feet for the week ending February 28. That compared to an expected drop of 140 billion to 174 billion cubic feet anticipated by analysts. Natural gas futures prices were trading about 0.8% higher in advance of the EIA's report, at around $4.56 per million BTUs and slipped to around $4.66 immediately following the EIA report.

The March natural gas April futures contract dropped to a six-week low on Monday of $4.492 per million BTUs, down from more than $6.15 just two weeks ago. Cold temperatures are expected to ease somewhat in the middle of this month in the Midwest, South and East, while above normal temps are expected in the West and the Great Plains. That should help keep prices below $5 per million BTUs.

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The country's natural gas supply is very likely to fall below a trillion cubic feet before the end of this month. That doesn't mean much, but it has not happened in nearly 10 years. Last week's inventory level was the lowest for this time of year since 2004.

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The EIA reported that U.S. working stocks of natural gas totaled 1.2 trillion cubic feet, about 758 billion cubic feet below the five-year average of 1.95 trillion cubic feet. Working gas in storage totaled 2.1 trillion cubic feet for the same period a year ago. Natural gas inventories continue to drop further below the bottom of the five-year range.

Here is how stocks of the largest U.S. natural gas producers reacted to this report:

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Exxon Mobil Corp. (XOM), the country's largest producer of natural gas, was down about 0.3%, at $93.55 in a 52-week range of $84.79 to $101.74.

Chesapeake Energy Corp. (CHK) was up 0.2%m at $25.54 in a 52-week range of $18.21 to $29.06.

EOG Resources Inc. (EOG) was up 0.1% to $190.66. The 52-week range is $112.05 to $163.22.

The U.S. Natural Gas Fund (UNG) was up about 1.1%, at $25.58 in a 52-week range of $16.59 to $27.89. The Market Vectors Oil Services ETF (OIH) was up 0.5%, at $48.84 in 52-week range of $39.42 to $51.11. The first fund tracks spot prices; the second includes major drillers and services companies.

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