CHICAGO, March 19, 2012 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog includeUltra Petroleum Corp. (NYSE: UPL), Talisman Energy Inc. (NYSE: TLM), Encana (NYSE: ECA), Exxon Mobil Corp. (NYSE: XOM) and ConocoPhillips (NYSE: COP).
Stockpiles held in underground storage in the lower 48 states fell by 64 billion cubic feet (Bcf) for the week ended March 9, 2012, above the guidance range (of 56–60 Bcf draw) as per the analysts surveyed by Platts.
The decrease – the sixteenth consecutive withdrawal of the 2011-2012 winter heating season after stocks hit an all-time high in mid-November – is higher than last year's draw of 60 Bcf though it was unable to match the 5-year (2007–2011) average drawdown of 79 Bcf for the reported week.
However, notwithstanding the healthy shrinkage during the past week, the current storage level – at 2.369 trillion cubic feet (Tcf) – is now up 735 Bcf (45.0%) from last year and 807 Bcf (51.7%) over the five-year average. With this huge and sharply widening natural gas surplus, inventories in underground storage are likely to end the winter close to their highest level of 2.1 Tcf set in 1983.
A supply glut has pressured natural gas prices during the past year or so, as production from dense rock formations (shale) – through novel techniques of horizontal drilling and hydraulic fracturing – remain robust, thereby overwhelming demand.
As a matter of fact, natural gas prices have dropped approximately 55% from 2011 peak of $4.92 per million Btu (MMBtu) in June to the current level of around $2.25 (referring to spot prices at the Henry Hub, the benchmark supply point in Louisiana). Incidentally, prices hit a 30-month low of $2.07 earlier this week.
To make matters worse, mild weather across most of the country have curbed natural gas demand for heating all winter, indicating a grossly oversupplied market that continues to pressure commodity prices in the backdrop of sustained strong production.
This has forced several natural gas players to announce drilling/volume curtailments. Exploration and production outfits like Ultra Petroleum Corp. (NYSE: UPL), Talisman Energy Inc. (NYSE: TLM) and Encana (NYSE: ECA) have all reduced their 2012 capital budget to minimize investments in development drilling.
On the other hand, Oklahoma-based Chesapeake – the second-largest U.S. producer of natural gas behind Exxon Mobil Corp. (NYSE: XOM) – and rival explorer ConocoPhillips (NYSE: COP) have opted for production shut-ins to cope with the weak environment for natural gas that is likely to prevail during the year.
However, we feel these planned reductions will not be enough to balance out the massive natural gas supply/demand disparity and therefore we do not expect much upside in gas prices in the near term. In other words, there appears no reason to believe that the supply overhang will subside and natural gas will be out of the dumpster in 2012.
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