The U.S. Energy Department's weekly inventory release showed another larger-than-expected rise in natural gas supplies. Moreover, the storage build was bigger than the benchmark 5-year average gain for the week.

About the Weekly Natural Gas Storage Report

The Weekly Natural Gas Storage Report – brought out by the Energy Information Administration (EIA) every Thursday since 2002 – includes updates on natural gas market prices, the latest storage level estimates, recent weather data and other market activities or events.

The report provides an overview of the level of reserves and their movements, thereby helping investors understand the demand/supply dynamics of natural gas. It is an indicator of current gas prices and volatility that affect businesses of natural gas-weighted companies and related support plays.

Analysis of the Data

Stockpiles held in underground storage in the lower 48 states rose by 112 billion cubic feet (Bcf) for the week ended Sep 26, 2014, higher than the guided range (of 103–107 Bcf gain) as per the analysts surveyed by Platts, the energy information arm of McGraw-Hill Financial Inc. The increase – the twenty-sixth successive weekly injection – also exceeded both last year’s build of 99 Bcf and the 5-year (2009–2013) average addition of 85 Bcf for the reported week.

Despite past week’s build, the current storage level – at 3.1 trillion cubic feet (Tcf) – is still down 373 Bcf (10.7%) from last year and 399 Bcf (11.4%) below the five-year average.

But with production from the shale drilling bonanza remaining strong, natural gas prices remain in check, currently below $4 per million Btu (MMBtu).  

Bearish Pressure on Prices

With monthly natural gas output reaching new highs regularly, prices continue to suffer. From a peak of about $13.50 per MMBtu in 2008 to around $3.95 now – sinking in between to a 10-year low of under $2 in 2012 – the plummeting value of natural gas represents a decline of over 70% over six years. In the absence of major production cuts, we do not expect much upside in gas prices in the near term.

Gas-Weighted Companies to Suffer

This translates into limited upside for natural gas-weighted exploration and production companies like Chesapeake Energy Corp. (CHK - Analyst Report), Cabot Oil & Gas Corp. (COG - Analyst Report) and EOG Resources Inc. (EOG -Analyst Report).

Gas-focused partnerships like Williams Partners L.P. (WPZ - Snapshot Report) and ONEOK Partners L.P. (OKS - Analyst Report) tend to suffer too, from falling sales for their natural gas liquids (NGL) processing.  

In fact, their Zacks Rank #3 (Hold) indicates that investors should wait for a better entry point before accumulating shares. In particular, companies with Zacks Rank #5 (Strong Sell) – such as Carrizo Oil & Gas Inc. (CRZO - Snapshot Report) – looks to be in most trouble.