EIA Reports Season's First Natural Gas Withdrawal

The U.S. Energy Department's weekly inventory release showed a surprise decrease in natural gas supplies – the season’s first withdrawal.

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: Surprise Decline

Stockpiles held in underground storage in the lower 48 states fell by 2 billion cubic feet (Bcf) for the week ended Nov 18, 2016, contrary to the guidance (of 2 Bcf gain) as per the analysts surveyed by S&P Global Platts, a leading independent commodities and energy data provider.

The past week’s decline represents the first withdrawal of the 2016-2017 winter heating season after stocks hit an all-time high in the previous week. However, the decrease was lower than the 5-year (2011–2015) average drop of 27 Bcf for the reported week.

Moreover, the current storage level – at 4.045 trillion cubic feet (Tcf) – is still up 39 Bcf (1%) from last year and is sitting 241 Bcf (6%) above the five-year average.

Long-Term Thesis Positive

Successive below-average builds and now the season’s first withdrawal – with strong power sector consumption – has been cutting into the year-over-year storage surplus. In fact, natural gas prices have rebounded strongly (by more than 90%) since hitting 17-year lows of around $1.6 per MMBtu in the first quarter. The dramatic recovery has helped the commodity breach the key psychological level of $3 per MMBtu.

The price strength has translated into major gains for natural gas-weighted companies including the likes of Cimarex Energy Co. (NYSE:XEC) , EQT Corp. (NYSE:EQT) , Southwestern Energy Co. (NYSE:SWN) , Cabot Oil & Gas Corp. (NYSE:COG) , Range Resources Corp. (NYSE:RRC) and Devon Energy Corp. (NYSE:DVN) .

However, each of these firms has a Zacks Rank #3 (Hold), which does not make them screaming buys. In case you are looking for natural gas names for your portfolio, one could opt for Ultra Petroleum Corp. (OTC:UPLMQ) . It has a Zacks Rank #1 (Strong Buy). Ultra Petroleum shares have outperformed Zacks categorized U.S. Oil and Gas Exploration and Production industry over the last three months. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

With the early winter turning out cooler than expected, natural gas demand has picked up on the back of elevated power sector consumption due to air-conditioning use. Coupled with the easing production from the major shale plays, natural gas prices are set to rise further.

What’s more, rig count is now languishing below 120 – compared to almost 200 a year ago and the high of 1,606 reached in 2008. Therefore, production growth is unlikely to resume anytime soon.

In general, sentiment toward natural gas is likely to become more positive in the near future as speculators bet on a frigid winter to follow the hot summer.

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