The U.S. Energy Department’s weekly inventory release showed a lower-than-expected decrease in natural gas supplies — the season’s first withdrawal. Despite the negative inventory numbers and a set of bearish factors, continued strong liquefied natural gas (“LNG”) feedgas deliveries suggest that the fuel’s prices will remain favorable in the short and medium terms. Natural gas futures were up 7.5% week over week, with the commodity settling near $5.50 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, Chesapeake Energy CHK, Comstock Resources CRK and Antero Resources AR.
EIA Reports a Withdrawal Smaller Than Market Expectations
Stockpiles held in underground storage in the lower 48 states fell by 21 billion cubic feet (Bcf) for the week ended Nov 19 compared to the 23 Bcf decline guidance, per the analysts surveyed by S&P Global Platts. While the decrease was above last year’s pull of 11 Bcf for the same corresponding week, it was less than the five-year (2016-2020) average net shrinkage of 44 Bcf.
The first draw of the winter heating season puts total natural gas stocks at 3,623 Bcf, which is 320 Bcf (8.1%) below the 2020 level at this time and 58 Bcf (1.6%) lower than the five-year average.
Natural Gas Still Registers a Weekly Climb
Natural gas prices trended upward last week despite the lower-than-expected inventory withdrawal. Futures for December delivery ended Friday at $5.447 on the New York Mercantile Exchange, rising 7.5% from the previous week’s closing. The increase in natural gas realization is primarily the result of the ongoing strength in U.S. LNG exports, which more than offset the effects of higher production and a warmer-than-normal weather outlook (and the subsequent lull in heating demand).
As is the norm with natural gas, changes in temperature and weather forecasts can lead to price swings. The latest models are anticipating milder temperature-driven consumption over the next fortnight, which is a negative for prices. There is also the issue of a steady rise in dry gas production levels.
Despite all this, the natural gas market appears to be relatively tight for now, mostly 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 gas supply is running low with the need for a steady refill from the United States ahead of the peak winter period.
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 more than doubled year to date and a staggering 270% 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 like CNX Resources, Chesapeake Energy, Comstock Resources and Antero Resources, which 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 50.9% in a year.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Chesapeake Energy has a projected earnings growth rate of 120.6% for the current year. CHK’s consensus estimate for the current year has been revised 11.9% upward over the last 30 days.
Chesapeake Energy beat the Zacks Consensus Estimate for earnings in three of the last four quarters. The Zacks #1 Ranked stock has a trailing four-quarter earnings surprise of roughly 23.1%, on average. CHK shares have rallied around 55.5% in a year.
Comstock Resources has a projected earnings growth rate of 513% for the current year. The Zacks Consensus Estimate for Zacks Rank #2 (Buy) CRK’s current-year earnings has been revised 28.2% 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 76.4% in a year.
Antero Resources has an expected earnings growth rate of 412.5% for the current year. The Zacks Consensus Estimate for AR’s current-year earnings has been revised 8% upward over the last 60 days.
Antero Resources, which is valued at around $5.8 billion, carries a Zacks Rank of 2. AR has soared some 369.1% in a year.
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