What happened

The energy sector pushed markets higher on Wednesday as oil and gas stocks soared again. Some of the lesser-known oil and gas stocks were making the biggest moves at 2:45 p.m. EDT, including:

So what

The prices of oil and natural gas are on a meteoric course, and nothing seems to be able to stop them.

As of this writing, natural gas prices have risen 3.5% after rising more than 6% in early morning trading, while the price of West Texas Intermediate (WTI) – a benchmark of US oil prices – traded up 3%.

With these gains, the price of WTI climbed nearly 17% from its August 20 low, while natural gas prices jumped 39% during the period. The astonishing price rally has set oil and gas inventories on fire, and it may not be extinguished just yet.

Image source: Getty Images.

Fears of declining oil and gas production – even as demand continues to rise – have been looming since Hurricane Ida hit the Gulf of Mexico a few weeks ago. The American Petroleum Institute (API) confirmed these fears with its weekly inventory report released on September 14: Crude oil inventories fell 5.4 million barrels in the week ended September 10, compared to a expected decline of 3.9 million barrels. The API reported a drop of about 2.9 million barrels the previous week.

The other day, the Organization of the Petroleum Exporting Countries (OPEC) predicted that demand for oil would exceed pre-pandemic levels in 2022.

Fear has gripped the natural gas market even harder due to supply disruptions during the peak storage season ahead of the winter months. U.S. natural gas inventories were down 16.8% year-over-year in the week ending Sept. 9, according to the U.S. Energy Information Administration (EIA).

Tightening oil and gas markets have sparked great interest in energy stocks as investors expect oil and gas companies to make more money with every price hike. Investors also expect these companies to use the extra cash to strengthen their balance sheets and reward shareholders more aggressively. Stocks that wait to unload debt before focusing on shareholder returns are currently receiving more attention.

DIRE Graphic

TELL given by YCharts

For example, Antero Resources investors anticipate a dividend and share buyback program in the coming months based on the financial goals of the oil and gas producer. Antero prioritizes a stronger balance sheet and targets a debt level of $ 2 billion before returning capital to shareholders in the form of share buybacks or dividends. Until the last quarter, the company expected to meet this target in early 2022, but it is expected to happen even sooner given the exponential rise in natural gas prices.

Likewise, the management of Range Resources – a major player in Marcellus’ shale gas sector – also highlighted in the last quarter how it intended to return money to shareholders once it gets brought its debt down to comfortable levels over the next few quarters.

For Tellurian, soaring natural gas prices are a divine moment, as its profitability and ability to build the Driftwood LNG export terminal in Louisiana is heavily dependent on liquefied natural gas (LNG) prices. LNG demand is approaching record levels due to supply constraints from Europe and Asia, with LNG spot prices reaching record levels as I write these lines.

SM Energy even got JP Morgan’s approval on the morning of September 15 when the company’s analysts raised their rating of the stock to overweight, with a price target of $ 27 per share, a 33% increase per share. compared to the closing price of the share. Tuesday.

Now what

Oil and gas prices will likely maintain their momentum until production along the Gulf Coast returns to normal, which should keep oil and gas inventories booming. For now, keep an eye out for two important metrics expected this week:

  • Any potential disruption to the Texas Energy Center from Tropical Storm Nicholas.
  • The EIA’s weekly natural gas report will be released tomorrow, September 16.

These should give you an idea of ​​production and inventory levels, and how they might affect the oil and gas industry.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.