Natural Gas Gains 5.7% for the Week: What's Behind the Rise?

The U.S. Energy Department's weekly inventory release showed a higher-than-expected increase in natural gas supplies. Despite the negative inventory numbers, continued strong liquefied natural gas (“LNG”) feedgas deliveries and the impending winter suggest that the fuel’s prices will remain favorable in the short and medium terms. Natural gas futures were up nearly 6% week over week, with the commodity settling above $5 per million British thermal units (MMBtu).

Given natural gas’ fundamental set-up, prices might ease occasionally but should generally stay strong. The upward trend should aid gas-weighted producers CNX Resources CNX, Goodrich Petroleum GDP, Comstock Resources CRK and Antero Resources AR.

EIA Reports a Build Larger Than Market Expectations

Stockpiles held in underground storage in the lower 48 states rose by 26 billion cubic feet (Bcf) for the week ended Nov 12 compared to the 22 Bcf addition guidance, per the analysts surveyed by S&P Global Platts. While the increase was below last year’s addition of 28 Bcf for the same corresponding week, it contrasted with the five-year (2016-2020) average net shrinkage of 12 Bcf.

The latest injection puts total natural gas stocks at 3,644 Bcf, which is 310 Bcf (7.8%) below the 2020 level at this time and 81 Bcf (2.2%) lower than the five-year average.

The total supply of natural gas averaged 99.3 Bcf per day, down 1.7% on a weekly basis due to lower dry production and decreased shipments from Canada.

Meanwhile, daily consumption rose 2.1% to 102.1 Bcf from 100 Bcf in the previous week, primarily driven by stronger demand from the residential/commercial sector on the back of cooler temperatures prevailing in a number of locations across the nation.

Natural Gas Still Heads Back Up Over the $5 Threshold

Natural gas prices trended upward last week despite the higher-than-expected inventory build. Futures for December delivery ended Friday at $5.065 on the New York Mercantile Exchange, rising 5.7% from the previous week’s closing. The increase in natural gas realization is the result of an encouraging weather outlook (and the subsequent pickup in heating demand), plus the ongoing strength in U.S. LNG exports.

Final Thoughts

As is the norm with natural gas, changes in temperature and weather forecasts can lead to price swings. The latest models are anticipating robust temperature-driven consumption, after which prices have gone up. With expectations of early-season cold weather calling for more people to crank up their heaters, the fuel’s usage is set to climb.

Another reason the natural gas market appears to be relatively tight for now is because of a stable demand catalyst. LNG shipments for export from the United States have been robust for months on the back of environmental reasons and record 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 and Asia, especially as we head into winter. The circumstances are particularly dire in Europe where the gas supply is running low with the need for a steady refill from the United States ahead of the freezing conditions forecast toward end-November and early December.

Consequently, the scenario for the primary U.S. power plant fuel is expected to be healthy. In fact, natural gas recently topped $6 MMBtu for the first time since 2014 and reached a 13-year high settlement of $6.312 in October. As a matter of fact, prices have almost doubled year to date and a staggering 240% from the 25-year lows in June 2020.

As mentioned at the top, a good way to play this upward trend in natural gas prices is to buy energy operators that produce a lot of the commodity.

CNX Resources has a projected earnings growth rate of 164.7% for the current year. The Zacks Consensus Estimate for CNX’s current-year earnings has been revised 55.2% upward over the last 60 days.

CNX Resources — carrying a Zacks Rank #1 (Strong Buy) — beat the Zacks Consensus Estimate for earnings in three of the last four quarters but missed once. It has a trailing four-quarter earnings surprise of roughly 35.4%, on average. CNX shares have gained around 43.8% in a year.

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

Goodrich Petroleum has a projected earnings growth rate of 1,952.4% for the current year. GDP's consensus estimate for the current year has been revised 15.5% upward over the last 30 days.

Goodrich Petroleum beat the Zacks Consensus Estimate for earnings in three of the last four quarters but missed once. The Zacks #1 Ranked stock has a trailing four-quarter earnings surprise of roughly 6.8%, on average. GDP shares have rallied around 82.1% in a year.

Comstock Resources has a projected earnings growth rate of 508.7% for the current year. The Zacks Consensus Estimate for Zacks Rank #2 (Buy) CRK’s current-year earnings has been revised 27.3% upward over the last 60 days.

Comstock Resources beat the Zacks Consensus Estimate for earnings in three of the last four quarters and met once. It has a trailing four-quarter earnings surprise of roughly 42.5%, on average. CRK shares have gained around 80.9% in a year.

Antero Resources has an expected earnings growth rate of 417.9% for the current year. The Zacks Consensus Estimate for AR's current-year earnings has been revised 9.9% upward over the last 60 days.

Antero Resources, which is valued at around $5.7 billion, carries a Zacks Rank of 2. AR has soared some 331.8% in a year.

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