Natural Gas Price Drops 3% on Sharp Inventory Rise

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The U.S. Energy Information Administration (EIA) reported Thursday morning that U.S. natural gas stocks increased by 51 billion cubic feet for the week ending August 26. Analysts were expecting a storage addition of around 35 billion cubic feet. The five-year average for the week is an injection of around 67 billion cubic feet, and last year’s storage addition for the week totaled 96 billion cubic feet. Natural gas inventories rose by 11 billion cubic feet in the week ending August 19.

Natural gas futures for October delivery traded down about 1.3% in advance of the EIA’s report, at around $2.85 per million BTUs, and traded near $2.80 after the data release. Natural gas closed at $2.89 per million BTUs on Wednesday, below a five-day high of $2.95 set last Friday. The 52-week range for natural gas is $2.05 to $3.02. One year ago the price for a million BTUs was around $2.96.

Natural gas prices rose on Wednesday on reports that a tropical storm in the Gulf of Mexico led to the shut-in of some 11% of natural gas production in the Gulf. By itself that would not have boosted prices by more than 2%, but combined with a weather forecast for continuing hot temperatures, the two were enough to lift prices temporarily.

Overall demand for natural gas through the weekend is expected to be moderate in most areas of the country, with high demand in both the southern and eastern regions. Unless the weather drives higher demand for air conditioning, the U.S. physical storage limit of 4.3 trillion cubic feet could be tested by the time natural gas injection season ends in October.

Stockpiles remain about 7.5% above their levels of a year ago and about 11% above the five-year average.

The EIA reported that U.S. working stocks of natural gas totaled about 3.401 trillion cubic feet, around 334 billion cubic feet above the five-year average of 3.067 trillion cubic feet and 238 billion cubic feet above last year’s total for the same period. Working gas in storage totaled 3.163 trillion cubic feet for the same period a year ago.

Here’s how share prices of the largest U.S. natural gas producers reacting to this latest report:

Exxon Mobil Corp. (NYSE: XOM), the country’s largest producer of natural gas, traded down about 0.8%, at $86.44 in a 52-week range of $71.55 to $95.55.

Chesapeake Energy Corp. (NYSE: CHK) traded down about 2.5% to $6.19. The stock’s 52-week range is $1.50 to $9.55.

EOG Resources Inc. (NYSE: EOG) traded down about 0.7% to $87.86. The 52-week range is $57.15 to $92.10.

In addition, the United States Natural Gas ETF (NYSEMKT: UNG) also traded down about 2.6%, at $8.23 in a 52-week range of $5.78 to $12.75.