U.S. natural gas prices posted a gain of nearly 50% for August — the largest monthly increase in more than a decade. Natural gas for October delivery settled at $2.63 per MMBtu on the New York Mercantile Exchange on Aug 31. For the month, prices surged 46%, the highest since September 2009. The stunning rally follows an unprecedented decline in June to the commodity’s lowest level since 1995 due to weak consumption from a warmer-than-expected winter 2019-2020 and a coronavirus-induced drop off in usage.
Here are three key reasons for the resurgence:
Bump in Cooling Demand: The onset of hotter weather has helped lift natural gas prices by more than 75% since late June. With the commodity being the primary U.S. power plant fuel, firms in natural gas business have gained from the bump in cooling-related usage. Already on the back of a scorching June and July, and continued heat wave in August, natural gas has experienced a ramp-up in air conditioning use. Riding on this positive momentum, prices recently rose to another 2020 high.
Decline in Production: The novel coronavirus outbreak remains a big catalyst for balancing the natural gas market. Analysts believe that the brake in skyrocketing shale oil production growth — tied to the crude price collapse — will also limit associated gas output, thereby cutting the massive supply glut. As a proof of the impending supply drop, the EIA expects the United States to churn out 88.7 billion cubic feet a day (Bcf/d) of dry natural gas this year, down from the 2019 average of 92.2 Bcf/d.
Rebounding LNG Exports: The steady improvement in shipments of LNG for export has also facilitated the natural gas market. Volumes flowing to LNG export plants dropped to multi-month lows earlier in the year due to weak international demand. However, there has been a sustained increase in feed gas volumes over the past few weeks on the back of a better demand outlook. This is likely to have translated into rising LNG shipments in August — the first in six months and a bullish demand factor for U.S. natural gas prices.
Want to Make the Most of Rising Natural Gas Prices?
While all gas-focused stocks stand to benefit from rising commodity prices, companies in the exploration and production (E&P) space are the best placed, as they are able to extract more value for their products.
A few of them are also seeing solid activity on the earnings estimate revision front. These positive earnings estimate revisions suggest that analysts are becoming more optimistic on the industry’s earnings for the current year. In fact, consensus estimates have moved higher for the period over the past four weeks, suggesting that the firms could be solid choices for investors.
We present four companies whose consensus estimates for 2020 have moved higher over four weeks, suggesting that they should be in investors’ watchlist.
SilverBow Resources, Inc. SBOW: A pure-play upstream operator in the Eagle Ford Shale in South Texas, SilverBow Resources is a natural gas-focused E&P company. Over 30 days, the Zacks Rank #1 (Strong Buy) company has seen the Zacks Consensus Estimate for 2020 increase 16.9%. SilverBow controls 165,000 net acres in the Eagle Ford and 79% of its total output comprises natural gas.
Range Resources Corporation RRC: The company, carrying a Zacks Rank #3 (Hold), has a strong footing in the prolific Appalachian Basin. In the gas-rich resource, the upstream firm has huge inventories of low-risk drilling sites that are likely to provide production for several decades. About 70% of the company’s total output is natural gas. Over 30 days, Range Resources has seen the Zacks Consensus Estimate for 2020 increase 110.5%.
Comstock Resources, Inc. CRK: Comstock is a leading operator in the Haynesville shale – a premier natural gas basin – with 307,000 net acres. About 98% of the Zacks Rank #3 company’s total output is natural gas. Over 30 days, Comstock has seen the Zacks Consensus Estimate for 2020 increase 22.2%.
Gulfport Energy Corporation GPOR: The company's asset base — primarily focused on natural gas — is concentrated on the Utica Shale of Ohio and the SCOOP play in Oklahoma. Gulfport has a combined inventory in excess of 3,000 gross drilling locations in its two primary plays. Of Gulfport’s total output, nearly 90% comprises natural gas. Over 30 days, the #3 Ranked company has seen the Zacks Consensus Estimate for 2020 increase 113.9%.
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