Natural gas hits $ 5 mark on bullish outlook
The US Department of Energy’s weekly inventory release showed a larger than expected increase in natural gas supplies. Despite bearish inventory numbers, low inventory levels and continued large deliveries of liquefied natural gas (“LNG”) suggest that fuel prices will remain favorable in the short to medium term. Natural gas futures were up 0.7% week-on-week, with the commodity settling above $ 5 per million British thermal units (MMBtu).
EIA reports more construction than market expectations
Inventories held in underground storage in the lower 48 states rose 76 billion cubic feet (Bcf) for the week ending Sept. 17 from forecasts of a 70 Bcf addition according to analysts polled by S&P Global Platts . The increase was also higher than the five-year (2016-2020) average net construction of 74 Bcf and last year’s addition of 70 Bcf for the same corresponding week.
The latest injection brings total natural gas inventories to 3,082 billion cubic feet (Bcf), down 589 Bcf (16%) from the current 2020 level and 229 Bcf (6.9%) less than the five-year average.
Total natural gas supply averaged 97.4 Bcf per day, up 0.2% on a weekly basis thanks to a slight increase in dry production which continues to recover from shutdowns caused by the storm in the Gulf of Mexico.
Meanwhile, daily consumption fell 0.9% to 84.8 Bcf from 85.6 Bcf the previous week, mainly due to lower electricity use and lower LNG deliveries.
Natural gas continues to increase by a few centimeters
Natural gas prices edged up last week despite higher than expected inventory build-up. Futures for delivery in October climbed back above the $ 5 threshold after a brief drop from the recent seven-year high settlement of $ 5.46 per MMBtu. The commodity finished Friday at $ 5.14 on the New York Mercantile Exchange, up 0.7% from the previous week’s close. The increase in the price of natural gas is the result of the slow resumption of operations affected by the hurricanes, the anticipated shortage of supply before winter and the surge in consumption in Europe and Asia.
While the latest weather models anticipate moderate natural gas consumption (or cooling demand) linked to temperature over the coming days, the medium-term outlook for the commodity remains favorable.
For starters, low inventory levels – well below normal for this time of year – have supported the price of the energy product with fears that the market will enter the winter withdrawal season with a shortage of supply. . In fact, working gas in U.S. storage is currently at its lowest level for this time of year since 2018 ahead of the peak demand season.
Second, LNG export shipments from the United States have been robust for months for environmental reasons and higher super-refrigerated fuel prices elsewhere. Most analysts believe that shipments look set to rise again this year due to increased consumption in Europe, Asia and Latin America, especially as we head into winter. The circumstances are particularly dire in Europe where the gas supply is running out with the need for regular replenishment of the United States before the heating season.
Therefore, the scenario for the primary fuel of the US power plant should be sound. In fact, natural gas just posted its fifth consecutive weekly increase. In fact, prices have more than doubled since the start of the year and an incredible 250% from the 25-year lows from June 2020.
Overall, given the fundamental configuration of natural gas, prices are expected to remain high. Upward trend should help gas-weighted producers SilverBow Resources SBOW, Range resources RRC, and Comstock Resources CRK, while the LNG exporter Chénière Energy LNG is also ready for growth. SilverBow and Range Resources have a Zacks # 1 rank (strong buy), while Comstock and Cheniere have a Zacks # 2 rank (buy).
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