This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Natural Gas Resumes Downward Price Trend as Storage Picks Up

Stocks in this article: XOM CHK APC UNG EXC

NEW YORK (TheStreet) - U.S. weekly gas in underground storage rose by 107 billion cubic feet (bcf) in the week ending July 11, to a peak of 2,129 bcf not seen since the last week of January, the Energy Information Administrationsaid on Thursday.

The higher-than-expected storage addition pushed natural gas price under $4 per million British thermal units (BTUs) for the first time in 2014.

Here Are Three Factors That Could Drag Down Oil Prices Even More

U.S. Markets Close Sharply Lower on Geopolitical Uncertainty

U.S. largest natural gas producers reacted to the news with sharp declines in their share prices. Exxon Mobil Corp (XOM),  the U.S. largest producer of natural gas, closed at $102.31 while Anadarko Petroleum (APC) lost 4% to $108.11 and Chesapeake Energy (CHK) was off 3.7% to $26.82. The United States Natural Gas ETF (UNG) was down 3.5% to $21.87.

The recent fall in prices could continue in the coming weeks as the market cools down. If natural gas continues to drop, this could reduce the revenue of natural gas producers such as Chesapeake Energy as nearly 70% of this company's production comes from natural gas. Lower prices will also slash the company's profit margins in the following quarters.

On the other hand, utility companies such as Exelon (EXC), which uses natural gas in its power stations, will benefit from lower prices: The downward trend in natural gas prices will reduce these companies' operating costs and thus improve their profitability.

The chart below shows the relationship between storage volumes and natural gas prices. The chart illustrates how increases in storage (the green area) are followed by increases in the price (the blue line) and in reversal when stocks go down prices go up. If reserves buildup continues at the high pace seen so far the price of natural gas will continue to decline, dragging along other natural-gas related assets.

Based on the EIA weekly storage report, in the week ending on July 4, the storage injection rose by 93 Bcf to 2,022 Bcf, while the week before that rose by 100 bcf to 1,929 bcf, well above the five-year average net injection of 72 bcf per week.

Source: EIA

Earlier this year, the natural gas storage fell to its lowest level in years, boosting its price. Since then, however, the storage injections  set at a higher pace than normal -- this slowly brought down the Henry Hub price from its high level. If the buildup in reserves continues at this high pace, the prices of natural gas will keep falling, dragging along with  other natural-gas-related assets.

At the time of publication the author had no position in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 18,030.21 +6.04 0.03%
S&P 500 2,081.88 -0.29 -0.01%
NASDAQ 4,773.4720 +8.0480 0.17%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs