Natural Gas Prices: What to Make of Last Week's Wild Swings
The U.S. Energy Department's weekly inventory release showed a smaller-than-expected increase in natural gas supplies. The bullish injection, together with a favorable weather forecast, triggered a rally that saw the U.S. benchmark gain 4.4% for the week.
Let us see how the natural gas situation looks like after the U.S. Energy Department's latest weekly inventory release:
What Does the Latest EIA Data Show?
Stockpiles held in underground storage in the lower 48 states rose by 66 billion cubic feet (Bcf) for the week ended Sep 18, lower than the guidance (of 77 Bcf gain). The increase was also below the five-year (2015-2019) average net addition of 80 Bcf and last year’s build of 97 Bcf for the reported week.
The latest uptick puts total natural gas stocks at 3.680 trillion cubic feet (Tcf) — 504 Bcf (15.9%) above the 2019 levels at this time and 407 Bcf (12.4%) higher than the five-year average.
Total supply of natural gas averaged 90.5 Bcf per day, down 1.3% on a weekly basis due to a decrease in dry production and lower shipments from Canada.
On the other hand, daily consumption — at 81 Bcf — was essentially unchanged from the previous week.
A Week of Heightened Volatility
Natural gas prices have seen some extreme volatility over the past few days. After suffering a 10% plunge on Monday, prices rebounded by almost 16% on Wednesday, and on Thursday the energy commodity posted another 6% gain following the release of the bullish EIA storage report. On Friday, natural gas fell by around 4.9%, but overall, the fuel was up 4.4% for the week on an improving demand outlook.
Natural Gas Price Recovers Significantly Since Late June
Natural gas settled at $2.139 per MMBtu on the New York Mercantile Exchange on Sep 25. Following past week’s wild ride, the fuel is up more than 45% since late June when natural gas fell to its lowest level since 1995 due to weak consumption from a warmer-than-expected winter 2019-2020 and a coronavirus-induced drop off in usage. The rebound traces its origins to three factors: a ramp up in air conditioning use on the back of a scorching summer, lower associated gas output tied to the brake in shale oil production growth, and steady improvement in shipments of LNG for export.
The commodity is currently going through the so-called “shoulder season” (or the months of September and October following the summer cooling season and ahead of the winter heating demand) of typically low consumption. This usually leads to higher weekly injections at this time of the year. In this context, last week’s rally traces its roots to lower year-over-year domestic production and higher LNG prices in Asia — America’s chief export market. Weather forecasts predicting lower temperatures in some areas of the country also buoyed natural gas prices.
Is There Any Investment Opportunity?
In the unpredictable world of natural gas, it might be prudent for investors to maintain caution in these uncertain times and look for fundamentally sound stocks.
We suggest adding SilverBow Resources SBOW to your portfolio. A pure-play upstream operator in the Eagle Ford Shale in South Texas, SilverBow Resources is a natural gas-focused E&P company carrying the coveted Zacks Rank #1 (Strong Buy). SilverBow controls 165,000 net acres in the Eagle Ford and 79% of its total output comprises natural gas.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Then there is Gulfport Energy GPOR. The company's asset base — primarily focused on natural gas — is concentrated on the Utica Shale of Ohio and the SCOOP play in Oklahoma. Gulfport, carrying a Zacks Rank #2 (Buy), has a combined inventory in excess of 3,000 gross drilling locations in its two primary plays. Of Gulfport’s total output, nearly 90% comprises natural gas.
Meanwhile, there are Zacks Rank #3 (Hold) natural gas stocks like Range Resources RRC, Cabot Oil & Gas COG, Comstock Resources CRK and CNX Resources CNX that investors may currently retain in their portfolio.
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