For Immediate Release
Chicago, IL – May 26, 2010 – Zacks.com Analyst Blog features: EOG Resources (EOG), Anadarko Petroleum Corp. (APC), Chesapeake Energy (CHK) and Devon Energy Corp. (DVN).
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Here are highlights from Tuesday’s Analyst Blog:
Natural Gas Supplies Remain Robust
Natural gas stockpiles have exceeded the five-year average for this time of year in each of the three storage regions for the last nine weeks. However, the most recent injection ended this trend, marking the first week-over-week decline in the five-year average since the week ended March 12, 2010.
Yet natural gas supplies remain above the record levels established in 2009 and are currently at historical highs for this time of year. Moreover, the latest weekly report, which showed an increase in natural gas in storage at the lower end of expectations, was largely on account of higher-than-normal temperatures rather than a shift in underlying fundamentals.
The specter of a continued glut in domestic gas supplies still exists, with storage levels remaining 17% above their five-year average. Following the end of the three-month cold snap (from December ‘09 through February ’10), there has been a significant reduction in space-heating demand.
Further pressurizing the commodity is the rapid rise in the number of drilling rigs working in the U.S. (the natural gas rig count has climbed 46% from a seven-year low reached last July) that signals a supply glut later this year in the face of sluggish industrial demand. Meanwhile, production from dense rock formations (shale) remains robust and demand from power plants remains soft.
There are concerns among traders that the market will be oversupplied in the short- to medium-term, with rig counts going up and industrial demand still struggling due to the weak economy. These factors translate into limited upside for natural gas-weighted companies and related support plays. Given the depressed state of the commodity, natural gas prices have dropped to around $4.00 per million Btu (MMBtu), after attaining this year’s peak of $7.51 per MMBtu on January 7 (referring to Henry Hub spot prices).
Considering the bearish fundamentals, we maintain our cautious stance on natural gas-focused E&P players such as EOG Resources (EOG), Anadarko Petroleum Corp. (APC), Chesapeake Energy (CHK) and Devon Energy Corp. (DVN).
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