Put These Three Stocks On Your Watchlist…
The price of natural gas took another haymaker to the chin last Thursday. Upon hearing the EIA’s most recent natural inventory report, investors aggressively sold the commodity to 2014 lows near $3.95 mmBtu.
Take a look…
As you can see, natural gas is dropping to test the $3.95 low set on January 10th (green line).
What was in the EIA’s report that caused such a selloff?
Energy investors found inventories rose by 107 bcf for the week of July 11th. The reading was above the consensus estimate build of 102 bcf. What’s more, the latest storage injection is higher than last year’s build of 58 bcf and beyond the 5-year average weekly addition of 68 bcf.
No doubt about it, natural gas producers are doing a hell of a job replenishing US gas inventories.
Of course, Mother Nature is helping out by providing a cooler than normal Summer for key demand regions. As you likely know, lower temperatures decrease cooling demand, which can send the price of natural gas lower this time of year.
However…
Total US inventories currently stand at 2,129 bcf, which is still 22.2% below last year and 25% below the 5-year average.
In spite of recent inventory gains, there’s still considerable doubt to whether producers can push inventories back to the 3,800 bcf “comfort zone” level by the start of the heating season in November.
With that said, top-tier natural gas producers are getting taken to the woodshed thanks to the recent downturn in the commodity they produce.
Companies like Range Resources (RRC), Cabot Oil & Gas (COG), and Ultra Petroleum (UPL) have all dropped precipitously in recent weeks.
But here’s the deal…
The downturn in the companies above is providing investors with a fantastic long-term buying opportunity.
Why?
Even though I’m not a fan of the policy, the US will start shipping natural gas to overseas countries next year. That fact, mixed with the ongoing inventory shortage situation, makes a compelling case for higher natural gas prices in the long run.
And while the commodity looks downright bearish in the short-term, the commodity is getting drastically oversold with respect to these looming fundamental changes.
As a result, it’s just a matter of time before the commodity bottoms out and returns to higher prices. And when it does, low cost producers like RRC, COG, and UPL will likely be the first to rebound.
Now let me be clear…
Don’t buy any of these names just yet. Bears are still in firm control of the price action. And it will likely stay that way until natural gas bottoms out. Instead, just add RRC, UPL, and COG to a watch list and keep an eye on them.
But when energy investors shift back to the bullish side of the natural gas market, your long-term portfolio will do likely do well by purchasing the names above.
Until Next Time,
Justin Bennett
***Disclosure*** Justin Bennett is long UPL call options.
Category: Natural Gas
