This is How Natural Gas Reacted to the Latest EIA Report

The U.S. Energy Department's weekly inventory release showed a higher-than-expected decrease in natural gas supplies. This bullish withdrawal, coupled with favorable weather predictions and strong liquefied natural gas (“LNG”) feedgas deliveries meant that the U.S. benchmark gained 1.4% 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 Pull Larger Than Market Expectations

Stockpiles held in underground storage in the lower 48 states fell by 134 billion cubic feet (Bcf) for the week ended Jan 8 compared to the guidance of a 123 Bcf decline. The decrease was also above last year’s drop of 91 Bcf for the reported week but came below the five-year (2016-2020) average net shrinkage of 161 Bcf.

The latest official data puts total natural gas stocks at 3.196 trillion cubic feet (Tcf), which is 126 Bcf (4.1%) above the 2020 levels at this time and 218 Bcf (7.3%) higher than the five-year average.

Total supply of natural gas averaged 96.5 Bcf per day, edging down 0.7% on a weekly basis due to a decrease in dry production.

Meanwhile, daily consumption was up 4.8% to 118.4 Bcf from 113 Bcf in the previous week, sparked by an increase in residential/commercial gas usage and an uptick in power demand.

Natural Gas Price Grinds Higher

Natural gas prices rose last week following the higher-than-expected inventory draw. Futures for February delivery ended Friday at $2.737 per MMBtu on the New York Mercantile Exchange, up 1.4% from the same time previous week. The increase in the price of natural gas is also the result of the ongoing strength in LNG demand and forecast models, indicating cooler weather in the last week of January, which translates into larger draws due to increased 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 chiller outlook later this month, prices are expected to trend higher. However, with stockpiles still bloated, downside risks would continue to outweigh the upside potential unless the weather pattern flips significantly to colder for natural gas usage to rise. While growing LNG exports and lower production are providing some support to a price recovery, it will be the magnitude of the cold across the United States that will dictate the energy commodity’s future.   

The lingering uncertainty over the heating 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, Cabot Oil & Gas Corporation COG, Southwestern Energy Company SWN etc. Others like Comstock Resources CRK and Range Resources RRC are further down the pecking order, with a Zacks Rank #4 (Sell).

If you are still looking for a near-term natural gas play, CNX Resources CNX might be a good selection.

CNX Resources is a leading operator in the Appalachian basin — the most- prolific domestic gas basin — with more than 1.1 million net acres. About 96% of the company’s total output is natural gas. While the company’s low-cost, high-quality inventory should ensure long-term output growth, cash flows will also receive some downside protection from attractive hedges.

The 2021 Zacks Consensus Estimate for this Zacks Rank #2 (Buy) company indicates 41.5% earnings per share growth over 2020.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) 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
 
CNX Resources Corporation. (CNX) : Free Stock Analysis Report
 
Range Resources Corporation (RRC) : Free Stock Analysis Report
 
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