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We recently published a list of 8 Most Undervalued Natural Gas Stocks To Buy According To Analysts. In this article, we are going to look at where Devon Energy Corporation (NYSE:DVN) stands against other most undervalued natural gas stocks to buy according to analysts.
According to a report by McKinsey published on November 5, North America’s power and natural gas markets are undergoing a significant transformation. The global trading value for these commodities has surged to nearly $33 billion in 2023, a 50% increase from the previous year. This growth is driven by several key trends that are reshaping the market landscape and creating new opportunities and challenges for both new and established players. The North American power and gas trading value pool has tripled since 2018, reaching an estimated $10 billion of EBIT in 2023, which represents approximately 30% of the global total. The report expects these value pools to continue their upward trajectory in the medium to long term, despite a potential pullback in 2024–25 due to higher gas storage levels following a milder-than-normal winter.
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Global Natural Gas Prices Surge as Cold Weather Boosts Demand
On December 3, Reuters reported that natural gas prices in Asia, Europe, and North America have surged by 30% to 50% so far in 2024, and are expected to continue climbing over the coming months. The forecast for colder weather is expected to drive higher heating demand in key consumer regions, further boosting gas prices. This trend is anticipated to keep gas market sentiment bullish until the winter season ends, with prices likely to remain high well into 2025. The rapid restocking of declining gas inventories in Europe and Asia is also expected to spur strong gas demand, even if temperatures moderate. This will ensure that gas prices have little room to decline. The high and rising gas prices are expected to increase power costs across key global markets, potentially hampering economic growth in China, Europe, and other regions, and raising concerns about inflation.
Colder-than-average temperatures are forecast for major gas-consuming areas, including China, Japan, and mainland Europe. For instance, Seoul, South Korea, is expected to see average December temperatures of around -2.17°C, compared to a long-term average of -0.7°C. Similar below-normal temperatures are predicted for Shanghai, Tokyo, and Hong Kong, which will increase the demand for heating and accelerate the consumption of natural gas and coal. In Europe, gas inventories have already seen a significant decline. Between October 1 and the end of November, cumulative gas inventories in Germany, the Netherlands, Belgium, and France fell by 11%, compared to relatively flat inventories in 2023 and a 3.5% increase in 2022. This rapid drawdown, coupled with the need to rebuild stocks, will put additional pressure on gas prices. In the United States, while natural gas inventories are currently the highest in over five years, they are on the brink of the traditional draw-down period, which typically sees a 9% reduction in stockpiles over the final five weeks of the year. This will further tighten gas supplies and support market sentiment.