E&P Stock Perspectives Per Underlying Commodity Price Drivers
9 May 2013 ¦ 13 pages ir.citi.com
A Warmer-Than-Normal Summer, Which Is Widely Forecast, Could
Further Benefit The More Natural Gas Levered E&P Stocks
Summer Weather Outlook – Citi’s Meteorological team is forecasting another
hotter-than-normal summer, and the 6th hottest on record, with nearly every region
of the country expected to experience above-normal temperatures. Most third-party
prognosticators are also calling for a hotter-than-normal summer this year. However,
Citi’s forecast would still result in weighted temperatures averaging ~6% cooler than
last summer. Importantly, although successively cooler, the past three summers
have been the three hottest since records have been kept beginning in 1950. But in
the mean time, a much colder-than-normal March and April this year have pushed
U.S. natural gas storage levels to below the five-year average, which has clearly
lent momentum to natural gas prices. And while deviations from normal have a
much greater impact on demand during the winter months, we estimate that every
1% deviation from normal temperatures during the summer (June-August) impacts
natural gas cooling-load demand by ~10 Bcf for this three-month period. Thus a 6%
cooler summer than last year, per Citi’s forecast, would result in ~60 Bcf less natural
gas demand year over year, all else being equal. But any potential further uplift to
natural gas prices from a hotter-than-normal summer would benefit the more natural
gas leveraged E&P stocks, i.e. UPL, CHK, ECA, COG and SWN, and vice versa. |
