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Natural Gas Stocks Below 5-Year Avg

Zacks Equity Research

The U.S. Energy Department's weekly inventory release showed a decrease in natural gas supplies on account of cold temperatures that spurred the commodity’s demand for heating. The storage withdrawal has also pushed down natural gas stocks below the five-year average level for the first time since September 2011.

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 94 billion cubic feet (Bcf) for the week ended Mar 29, 2013, at the upper end of the guided range (of 90–94 Bcf drawdown) as per the analysts surveyed by Platts, the energy information arm of McGraw-Hill Companies Inc. (MHP) .

The decrease represents the 19th withdrawal of the 2012-2013 winter heating season after stocks hit an all-time high in early November last year. Moreover, the draw – the largest for this time of the year since EIA started collecting weekly storage data in 2002 – was in contrast to last year’s injection of 43 Bcf and the five-year (2008–2012) average addition of 4 Bcf for the reported week.

Following the past week’s reduction, the current storage level – at 1.687 trillion cubic feet (Tcf) – is down 779 Bcf (31.6%) from the last year. More importantly, the latest weekly draw has overturned the excess stock over the five-year average, with the current storage being 37 Bcf (2.1%) below the benchmark. In fact, natural gas inventories in underground storage have gone under the five-year average for the first time since late September 2011.

In recent times, cold winter weather across most parts of the country has boosted natural gas demand for space heating by residential/commercial consumers. This, coupled with flat production volumes, means that the inventory overhang is now gone, thereby driving commodity prices to its 18-month high of $4.12 per million Btu (MMBtu) (referring to spot prices at the Henry Hub, the benchmark supply point in Louisiana).

This, in turn, is expected to buoy natural gas producers, particularly smaller players like Bill Barrett Corp. (BBG), Linn Energy LLC (LINE) and Forest Oil Corp. (FST). With an improvement in the companies’ ability to generate positive earnings surprises, they are likely to move higher from their current Zacks Rank #3 (Hold).

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