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Know Why Natural Gas Prices Ended 5.7% Higher Past Week

The U.S. Energy Department's weekly inventory release showed a bigger-than-expected decrease in natural gas supplies. The encouraging inventory numbers, coupled with other factors, meant that futures rose week over week.

In fact, the market has been kind to natural gas in 2022, with the commodity trading considerably higher year to date and hitting $10 for the first time since 2008. Natural gas stocks like Range Resources RRC, EQT Corporation EQT and Comstock Resources CRK have been some of the prime beneficiaries of the price appreciation.

EIA Reports a Withdrawal Larger Than Market Expectations

Stockpiles held in underground storage in the lower 48 states fell 50 billion cubic feet (Bcf) for the week ended Dec 9, above the guidance of 46 Bcf decline per a survey conducted by The Wall Street Journal.

However, the decrease was below last year’s pull of 83 Bcf for the same corresponding week and the five-year (2017-2021) average net shrinkage of 93 Bcf.

The fourth draw of the winter heating season puts total natural gas stocks at 3,412 Bcf, which is 18 Bcf (0.5%) below the 2021 level at this time and 15 Bcf (0.4%) lower than the five-year average.

The total supply of natural gas averaged 105.6 Bcf per day, up 0.2 Bcf per day on a weekly basis due to marginal increases in dry production and shipments from Canada.

Meanwhile, daily consumption improved 2.2% to 118.2 Bcf from 115.6 Bcf in the previous week, mainly reflecting a stronger power burn and increased residential/commercial demand.

Natural Gas Logs a Weekly Gain

Natural gas prices trended upward last week, following the higher-than-expected inventory draw. Futures for January delivery ended Friday at $6.60 on the New York Mercantile Exchange, rising around 5.7% from the previous week’s closing. The increase in natural gas realization — for the first time in three weeks — is also the result of forecasts for chillier weather.

As is the norm with natural gas, changes in temperature and weather forecasts can lead to price swings. With heavy snowfall and frigid air, the latest models anticipate strong temperature-driven consumption in the near term (with extensive use of heaters across homes and businesses), which is a positive for prices.

A stable demand catalyst in the form of continued strong LNG feedgas deliveries is also supporting natural gas. LNG shipments for export from the United States have been robust for months on the back of environmental reasons and record-high prices of the super-chilled fuel elsewhere.

Now, with the Russia-Ukraine conflict, LNG has become even more coveted. As a matter of fact, earlier this year, the United States entered into a partnership with the EU to export additional LNG to wean the bloc off its dependence on Russian natural gas supplies. This means that LNG deliveries are poised to rise further, especially with squeezed natural gas supplies from Moscow to Europe, following leaks in the key Nord Stream pipeline.

However, the protracted downtime associated with the fire breakout at the Freeport LNG export plant in Texas has drowned out some of the positives as of now. The Quintana, TX facility — responsible for around 15% of U.S. liquefaction capacity — was knocked offline by the Jun 8 blast and is expected to only partially restart by the end of December after several missed target dates. Consequently, some of the LNG cargoes due for export are likely to have been diverted to the domestic market despite huge demand abroad.

Final Thoughts

Despite some hiccups in between, the natural gas market is still up more than 75% so far this year. While fundamental indicators continue to suggest strong price levels, the natural gas market is currently quite unpredictable and spooked by the sudden changes in weather. As such, investors are rather unsure of what to do. As of now, the lingering uncertainty over the fuel means that they should preferably opt for fundamentally strong stocks like Range Resources, EQT and Comstock Resources.

Range Resources: The upstream firm has a strong footing in the prolific Appalachian Basin. In the gas-rich resource, RRC has huge inventories of low-risk drilling sites that are likely to provide production for several decades.

Range Resources has a projected earnings growth rate of 151% for the current year. Valued at around $6.4 billion, this Zacks Rank #3 (Hold) company reported EPS of $1.37 in the third quarter, reflecting a 0.7% surprise over consensus. RRC shares have climbed 44.1% this year.

You can see the complete list of today’s Zacks #1 Rank stocks here.

EQT: EQT is primarily an explorer and producer of natural gas, with a primary focus on the Appalachian Basin in Ohio, Pennsylvania and West Virginia. In terms of average daily sales volumes, EQT is the largest natural gas producer in the domestic market.

The company has an expected earnings growth rate of 335.9% for the current year. EQT’s expected EPS growth rate for three to five years is currently 56%, which compares favorably with the industry's growth rate of 28.7%. EQT — valued at around $13.7 billion — has soared 69.9% this year.

Comstock Resources: The company is active in the Haynesville shale in North Louisiana and East Texas — a premier natural gas basin. As of now, CRK has a projected earnings growth rate of 212.1% for the current year.

Comstock Resources, with a market capitalization of $3.5 billion, enjoys a Zacks Value and Growth Style Score of A each, and an overall VGM Score of A. CRK shares have surged 75.2% so far this year.

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