Huge Gain in Natural Gas Supply Hits Price

Blue flames of a gas stove
Blue flames of a gas stove

The U.S. Energy Information Administration (EIA) reported Thursday morning that U.S. natural gas stocks increased by 87 billion cubic feet last week, compared with an expected build of about 74 billion to 78 billion cubic feet anticipated by analysts. Natural gas futures prices were trading about 1% lower in advance of the EIA's report, at around $3.45 per million BTUs, and slipped to around $3.40 immediately following the EIA report.

The EIA reported that U.S. working stocks of natural gas totaled 3.39 trillion cubic feet, about 30 billion cubic feet higher than the five-year average of 3.36 trillion cubic feet. Working gas in storage totaled 3.57 trillion cubic feet for the same period a year ago. Natural gas inventories remain roughly in the middle of the five-year range. The five-year average increase for the period is 75 billion cubic feet.

As of Wednesday's close, natural gas prices have fallen $0.22 in the past week and are up nearly $0.57 from the same period a year ago. Part of the pricing issue is the surge in the use of coal as fuel for electricity generation. Natural gas use for power generation has fallen 14% year-over-year in the first seven months of 2013, according to EIA data. The gain in natural gas burning was almost purely a function of price. As the price of natural gas rises, power plants switch back to burning coal.

Here is how stocks of the largest U.S. natural gas producers are reacting to today's report:

Exxon Mobil Corp. (NYSE: XOM), the country's largest producer of natural gas, is up 0.1%, at $87.25 in a 52-week range of $84.70 to $95.49.

Chesapeake Energy Corp. (NYSE: CHK) is down 0.1%, at $26.26 in a 52-week range of $16.23 to $27.46.

EOG Resources Inc. (NYSE: EOG) is down 0.5%, at $170.45 in a 52-week range of $107.76 to $173.92.

The US Natural Gas Fund (NYSEMKT: UNG) is down 1.7%, at $17.99 in a 52-week range of $16.59 to $24.09. The Market Vectors Oil Services ETF (NYSEMKT: OIH) is down 0.1%, at $47.55 in a 52-week range of $36.24 to $48.52. The first fund tracks spot prices; the second includes major drillers and services companies.

Filed under: Commodities & Metals Tagged: CHK, EOG, OIH, UNG, XOM