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 low stockpile levels and continued strong liquefied natural gas (“LNG”) feedgas deliveries suggest that the fuel’s prices will remain favorable in the short and medium term. Natural gas futures were up 0.7% week over week, with the commodity settling above $5 per million British thermal units (MMBtu).
EIA Reports a Build Bigger Than Market Expectations
Stockpiles held in underground storage in the lower 48 states rose by 76 billion cubic feet (Bcf) for the week ended Sep 17 compared to the guidance of a 70 Bcf addition per the analysts surveyed by S&P Global Platts. The increase was also above the five-year (2016-2020) average net build of 74 Bcf and last year’s addition of 70 Bcf for the same corresponding week.
The latest injection puts total natural gas stocks at 3,082 billion cubic feet (Bcf), which is 589 Bcf (16%) below the 2020 level at this time and 229 Bcf (6.9%) lower than the five-year average.
The total supply of natural gas averaged 97.4 Bcf per day, edging up 0.2% on a weekly basis on the back of a slight increase in dry production that continues to recover from the storm-led shut-ins in the Gulf of Mexico.
Meanwhile, daily consumption fell 0.9% to 84.8 Bcf from 85.6 Bcf in the previous week, primarily due to lower power burn and decreased LNG deliveries.
Natural Gas Continues to Inch Higher
Natural gas prices trended slightly upward last week despite the higher-than-expected inventory build. Futures for October delivery headed back up over the $5 threshold after a brief drop from the recent seven-year high settlement of $5.46 per MMBtu. The commodity ended Friday at $5.14 on the New York Mercantile Exchange, rising 0.7% from the previous week’s closing. The increase in the price of natural gas is the result of the slow restoration of hurricane-affected operations, anticipated pre-winter supply crunch, and surging consumption in Europe and Asia.
Wrap-Up
While the latest weather models are anticipating moderate temperature-driven natural gas consumption (or cooling demand) over the next few days, the commodity’s medium-term outlook continues to be favorable.
For starters, the low stockpile levels — well below normal for this time of the year — have been supporting the price of the energy commodity with the apprehension that the market might enter the winter withdrawal season with a supply shortage. In fact, working gas in U.S. storage currently sits at its lowest level for this time of the year since 2018 going into the peak demand season.
Secondly, LNG shipments for export from the United States have been robust for months on the back of environmental reasons and higher prices of the super-chilled fuel elsewhere. Most analysts believe that deliveries appear poised for further gains this year on surging consumption in Europe, Asia, and Latin America, especially as we head into winter. The circumstances are particularly dire in Europe where gas supply is running low with the need for a steady refill from the United States ahead of the heating season.
Consequently, the scenario for the primary U.S. power plant fuel is expected to be healthy. In fact, natural gas just registered its fifth weekly climb in a row. As a matter of fact, prices have more than doubled year to date and a staggering 250% from the 25-year lows from June 2020.
Final Words
Overall, given natural gas’ fundamental set-up, prices are expected to stay strong. The upward trend should aid gas-weighted producers SilverBow Resources SBOW, Range Resources RRC, and Comstock Resources CRK, while LNG exporter Cheniere Energy LNG is also primed for growth. SilverBow and Range Resources sport a Zacks Rank #1 (Strong Buy), while Comstock and Cheniere carry a Zacks Rank #2 (Buy).
You can see the complete list of today’s Zacks #1 Rank stocks here.
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