Yahoo Finance Natural Gas Prices Extend Losses for Yet Another Week
The U.S. Energy Department's weekly inventory release showed a smaller-than-expected decrease in natural gas supplies. The negative inventory numbers, coupled with other factors, meant that futures fell week over week.
In fact, the market hasn't been kind to natural gas in 2023, with the commodity trading considerably lower year to date and briefly breaking below the $2 threshold for the first time since 2020.
While macro challenges are leading to some concerns, we advise investors to focus on stocks like SilverBow Resources SBOW and Cheniere Energy LNG.
EIA Reports a Withdrawal Marginally Smaller Than Anticipated
Stockpiles held in underground storage in the lower 48 states fell 23 billion cubic feet (Bcf) for the week ended Mar 31, just below the guidance of 24 Bcf decline per a survey conducted by S&P Global Commodity Insights.
While the decrease compared favorably with the five-year (2018-2022) average net change of 0 Bcf, it came slightly below last year’s shrinkage of 24 Bcf.
The latest draw of the winter heating season puts total natural gas stocks at 1,830 Bcf, which is 443 Bcf (31.9%) above the 2022 level at this time and 298 Bcf (19.5%) higher than the five-year average.
The total supply of natural gas averaged 105 Bcf per day, unchanged on a weekly basis as lower dry production was offset by an increase in shipments from Canada.
Meanwhile, daily consumption deteriorated 4.8% to 99.7 Bcf from 104.7 Bcf in the previous week, mainly reflecting lower industrial as well as residential/commercial demand.
Price Action Remains Bearish
Natural gas prices trended downward last week — a holiday-shortened one — following the smaller-than-expected inventory draw. Futures for May delivery ended Thursday at $2.01 on the New York Mercantile Exchange, falling around 9.3% from the previous week’s closing. The decrease in natural gas realization is also indicative of mild spring weather in the days ahead, which would translate into bigger inventory additions due to tepid requirements for heating and cooling
As is the norm with natural gas, changes in temperature and weather forecasts can lead to price swings. With the latest models anticipating little temperature-driven consumption in the near term (with less use of heaters/coolers across homes and businesses), prices are likely to be impacted adversely. Compounding the matter, daily production has hovered around the record 100 Bcf mark due to a relatively mild winter, and this has pushed stocks significantly above historical levels.
However, 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 elevated for months on the back of environmental reasons and record-high prices of the super-chilled fuel elsewhere.
Now, with the Russia-Ukraine conflict dragging on, LNG has become even more coveted. As a matter of fact, last 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 remain robust, especially with squeezed natural gas supplies from Moscow to Europe, following a shutdown in the Nord Stream pipeline from last August.
Finally, the return of the Freeport LNG export plant in Texas to full capacity will lead to more gas flowing overseas. The Quintana, TX facility — responsible for around 15% of U.S. liquefaction capacity — was knocked offline by a blast in June last year and was only partially functional till recently.
Final Thoughts
Based on several factors, the natural gas market is down more than 55% so far this year. As a matter of fact, the space 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 holding on to fundamentally strong stocks like SilverBow Resources and Cheniere Energy.
SilverBow Resources: SilverBow has operations across roughly 130,000 net acres in the Eagle Ford, and more than 80% of its total output comprises natural gas. The Zacks Rank #3 (Hold) company’s exposure to premium markets and focus on costs and margins should help it to benefit from any increase in natural gas prices.
You can see the complete list of today’s Zacks #1 Rank stocks here.
SilverBow beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 80.8%. Valued at around $528 million, SBOW has lost 36.3% in a year.
Cheniere Energy: Being the first company to receive regulatory approval to export LNG from its 2.6 billion cubic feet per day Sabine Pass terminal, Cheniere Energy certainly enjoys a distinct competitive advantage.
Cheniere Energy has a projected earnings growth rate of 187.6% for the current year. The Zacks Consensus Estimate for this #3 Ranked natural gas exporter’s 2023 earnings has been revised 8.7% upward over the past 60 days. LNG shares have gained 10% in a year.
At the same time, investors might want to sell some bottom-ranked stocks like Comstock Resources CRK.
Comstock Resources: CRK is a leading operator in the Haynesville shale — a premier natural gas basin — with 323,000 net acres. About 98% of the company’s total output is natural gas.
Comstock Resources has a projected earnings growth rate of -50.1% for the current year. Valued at around $2.9 billion, this Zacks Rank #5 (Strong Sell) company’s 2023 earnings have been revised 37.8% downward over the past 60 days. CRK shares have lost 30.8% this year.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Comstock Resources, Inc. (CRK) : Free Stock Analysis Report
Cheniere Energy, Inc. (LNG) : Free Stock Analysis Report
SilverBow Resources (SBOW) : Free Stock Analysis Report
