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Natural Gas Market Analysis in the Aftermath of the EIA Data

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·4 min read
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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 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 what 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 115 billion cubic feet (Bcf) for the week ended May 21 compared to the guidance of a 107 Bcf addition per the analysts surveyed by S&P Global Platts. Moreover, the increase was above last year’s addition of 105 Bcf for the same corresponding week and the five-year (2016-2020) average net build of 91 Bcf.

The latest injection puts total natural gas stocks at 2,215 billion cubic feet (Bcf), which is 381 Bcf (14.7%) below the 2020 levels at this time and 63 Bcf (2.8%) lower than the five-year average.

Total supply of natural gas averaged 96.7 Bcf per day, edging up 0.4% on a weekly basis due to an increase in dry production.

Meanwhile, daily consumption rose 2.6% to 82.7 Bcf from 80.6 Bcf in the previous week, buoyed by higher power burn on the back of early summer heat.

Natural Gas Price Grinds Higher

Natural gas prices trended slightly upward last week despite the higher-than-expected inventory build. Futures for July delivery ended Friday at $2.99 per million British thermal units (MMBtu) on the New York Mercantile Exchange, rising a modest 0.2% from the previous week’s closing. The marginal increase in the price of natural gas is the result of warmer weather predictions in the United States for the days ahead, which would translate into robust demand for the fuel.

Wrap-Up

As is the norm with natural gas, changes in temperature and weather forecasts can lead to price swings. The latest models are anticipating higher temperature-driven consumption, after which prices have gone up.

While the prospect of early summer demand growth is likely to drive U.S. natural gas futures higher, the bulls are facing pressure from the recent bearish storage additions.

Healthy LNG export and strong deliveries to Mexico are also providing some support to the prices, but it will be weather conditions across the United States that will primarily dictate the energy commodity’s future.

Therefore, in the coming weeks, natural gas prices would be mostly determined by temperature levels — whether they are lower or higher than average. The heightened 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, Antero Resources AR, Southwestern Energy Company SWN, Cabot Oil & Gas Corporation COG etc.

If you are still looking for near-term natural gas plays, SilverBow Resources SBOW might be an excellent selection.

A pure-play upstream operator in the Eagle Ford Shale in South Texas, SilverBow Resources is a natural gas-focused exploration and production company. Over 30 days, the Zacks Rank #1 (Strong Buy) company has seen the Zacks Consensus Estimate for 2021 increase 21.5%. SilverBow controls 165,000 net acres in the Eagle Ford and around 80% of its total output comprises natural gas.

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
 
Antero Resources Corporation (AR) : Free Stock Analysis Report
 
SilverBow Resources Inc. (SBOW) : Free Stock Analysis Report
 
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