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Key Factors That Affected Natural Gas Markets Last Week

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The U.S. Energy Department's weekly inventory release showed a higher-than-expected increase in natural gas supplies. Despite the bearish inventory numbers, the prospect of more weather-related consumption and strong liquefied natural gas (“LNG”) feedgas deliveries meant that the U.S. benchmark eked out a small gain last week.

Let us see how the natural gas situation looks like after the U.S. Energy Department's latest weekly inventory release:

EIA Reports a Build Larger Than Market Expectations

Stockpiles held in underground storage in the lower 48 states rose by 60 billion cubic feet (Bcf) for the week ended Apr 30 compared to the guidance of a 51 Bcf addition as per the analysts surveyed by S&P Global Platts. However, the increase was below last year’s addition of 103 Bcf for the reported week and the five-year (2016-2020) average net build of 81 Bcf.

The latest injection puts total natural gas stocks at 1,958 billion cubic feet (Bcf), which is 345 Bcf (15%) below the 2020 levels at this time and 61 Bcf (3%) lower than the five-year average.

Total supply of natural gas averaged 96.1 Bcf per day, essentially unchanged on a weekly basis as higher dry production was offset by lower shipments from Canada.

Daily consumption — at 90.5 Bcf — remained flat too, with an increase in power burn offset by a dip in industrial demand.

Natural Gas Prices Hover Around $3

Natural gas prices trended slightly upward last week despite the higher-than-expected inventory build. Futures for June delivery ended Friday at $2.96 per million British thermal units (MMBtu) on the New York Mercantile Exchange, inching up 0.9% from the previous week’s closing and nearing the psychological $3 threshold. The modest increase in the price of natural gas is the result of the ongoing strength in LNG demand and pipeline exports to Mexico, as well as forecast models, indicating a cold front in the days ahead, which would translate into smaller inventory additions due to more use of heaters.

Wrap-Up

As is the norm with natural gas, changes in temperature and weather forecasts can lead to price swings. With the latest models showing bullish changes toward a late-season cold pattern, prices have trended higher.

However, with winter drawing to a close and the so-called “shoulder season” of typically low natural gas demand in the spring underway, prices could face more downside risks than upside potential. While growing LNG export and strong deliveries to Mexico amid flat production are providing some support to the prices, it will be weather conditions across the United States that will dictate the energy commodity’s future.

The lingering uncertainty over the fuel means that most natural gas-focused companies carry a Zacks Rank #3 (Hold). As a result, investors should preferably wait for a better entry point before buying shares in EQT Corporation EQT, Range Resources RRC, Comstock Resources CRK, SilverBow Resources SBOW, Southwestern Energy Company SWN, Cabot Oil & Gas Corporation COG etc.

You can see the complete list of today’s Zacks #1 Rank stocks here.

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Comstock Resources, Inc. (CRK) : Free Stock Analysis Report
 
EQT Corporation (EQT) : Free Stock Analysis Report
 
Southwestern Energy Company (SWN) : Free Stock Analysis Report
 
Cabot Oil & Gas Corporation (COG) : Free Stock Analysis Report
 
Range Resources Corporation (RRC) : Free Stock Analysis Report
 
SilverBow Resources Inc. (SBOW) : Free Stock Analysis Report
 
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