Decent short covering rally underway today after making new lows this am. One of the big drivers is the EIA 914 data released this am. Here is the report-http://www.eia.doe.gov/oil_gas/natural_gas/data_publications/eia914/eia914.html Some I suppose are perceiving it as bullish. I am not, gas is gas and month over month production is flat. The buyers are focusing on onshore production loss, but we had offsetting offshore production gains. Also, onshore losses are being attributed to freezeoffs from cold weather and some processing going offline, so that is likely volume to return, not falling production. The market is focusing on the falling rig rates and when exactly that will translate into falling production, which will happen in the coming months, but this report is being read wrong. Here is the key wording in this report- "New Mexico (down 4 percent) and Wyoming (down 2 percent) are both down due to freezing weather and gas processing plants going offline." Also, supply is supply, regardless of where it is coming from, and supply has not fallen yet, that will take time. Also, the US will have a year over year uptick in LNG receipts as the losses in Asian and UK demand will become more evident as winter wanes and cargoes wind up pointed at the market of last resort (the US). However you slice and dice it, ending storage levels for next winter are likely to be at or approaching a record breaking 4 TCF!! In case you're wondering, I have no directional position on at the moment, so this is not drivel, talking my book mad at a rally; just sharing information.
Papa, I trade natural gas for a living and respect your thoughts, the points are all well taken. My issue is this: last summer, as the market continued to rally and make new highs, we all heard the same things over and over again. No LNG. Gas was cheap on a btu basis. Storage levels were down. At some point though, we had large institutions like CALPERS treating natural gas as if it was an asset class and this was an obvious error in judgement. Now we find ourselves at $4.00, and anyone that has traded this market for a while knows that the masses get slaughtered. There is a put skew for the first time in a long long time, big buyers are buying June 2.00 puts and so on. (Big buyers last summer were buying March 25 calls.) Ultimately, my point is this, yes, fundamentals are bearish but all of the things you mentioned above have been apparent for a while. Can this market continue to trade lower and lower on the same news? Its more of a rhetorical question, but I am of the opinion that being short natural gas here is an extremely crowded trade, not unlike being long was last summer. I am waiting for my retired father in law in North Carolina to tell me his financial advisor wants him to buy natural gas puts, then I will know the bottom is in. I know people in this forum are quick to attack anyone with an opinion, but I am just sharing my own thoughts.
I have been reading that there are buyers out there whenever we hit the multiyr lows here makes sense just like buyers appeared when crude oil got down to the mid 30;s I still think that there might be sellers out there in all energy markets if equities crap out again next week
Watch out next week, there is a lot of money looking for a place, oil should have sold off to 41 today, the move today in oil & the gasoline products is very Bullish. Equities are way oversold: new money will be long beginning of month. If Oil is just relatively flat for EIA data it hits 51 next week, and if gasoline stocks draw again: the whole complex is on fire. I guarantee you oil and rbob will be green sunday night. There are some "acquisitions" that will happen over the weekend, which will be viewed as bullish--for equities---can`t say more. I was at work and wondered what caused NG to trade from 3.90 when i glanced to 4.25, especially since it cannot get to 4.15 without a court order-----this appears {from strictly a technical aspect} extremely bullish--major trend reversal day. I wouldn`t be surprised if today was the bottom in NG without the economy taking another leg down which i don`t anticipate or factor into this analysis. I think every doom and gloom scenario is priced into the market right now: worst january in the history of the stock market after already being down 38% in 08, then followed by the 2nd worst february ever. GE=8.50=bottom=4=pe right now I am not making a long-term call but for the next 3 weeks I think the petroleum products lead the way, with a bunch of bargain hunters in equities providing a boost=you don`t want to miss the long trade in crude & probably exxon mobil for the next 3 weeks.
-a bunch of bargain hunters in equities providing a boost- without this ... the rally will fail of course in the energy complex not saying here that we drop below fridays low in NG or to the mide 30's again in CL but the correlations do not stop on a dime ... alot of folks on ET are negative equities and in the general press so maybe there will be a solid bounce coming for 401K mutual fund holders of america ( if they have not sent all those funds to cash already )
Technical traders who play "momentum" strategies, probably got short last summer and remain short (& profitable) today.
I know the concern you have, we have had a historic selloff in energy from last summers nose bleed pricing, and have not had a single TRUE correction, esp in natty. I cannot rule out a larger price correction to clear out some weak shorts, but the upside to this market will be very limited. The fundamentals are just so overwhelmingly bearish (were looking at a 6-7 BCF/day oversupply in the S/D balance right now). I don't expect that to stay static and do think it will shrink in the coming months, but not enough to deflect an extreme glut this summer. Last summers rally was more about global money flows than anything, there was so much money chasing alpha, they were looking for anything that was percieved to be undervalued. That is why you heard how cheap natty was on a BTU value. But as you know, all the available fuel switching from oil to gas had been done quite some time back, therefore the BTU parity was only a paper perception, (kind of like Bernanke's brain power). LNG was down year over year, but the weekly injection pace still netted us a robust start to winter, and that included losing over 300 BCF from hurricane outages. Do not count on low LNG imports again this summer, expect at the bare minimum a half a BCF/day more imports this year. Predicting hurricanes in the Gulf is like practicing voodoo, but the Earthsat view for the upcoming season is not bullish for Gulf major storms. If we don't have another season of storm related losses on top of everything else we are looking at, this just strengthens the glut view. The models I have seen are calling for a test of theoretical storage limits of 4-4.1 TCF, and that is adjusting for a small tightening in the S/D balance. The lack of money flows and fund participation we have seen over the past several years will also weigh on price I think. Centaurus is now the sole big swinging dick of the natgas speculative market, he has won the throne as so many other funds that were big natty traders have either closed shop or greatly reduced their exposure to it with their shrinking equity base. He is known to be a value trader more than anything, and I know he is very bearish on a macro outlook. Bottom line, I am not ruling out a corrective month at some point, but as you know, molecules produced have only 2 places to go; burnertip or storage. With storage being finite and coal dynamics of production and storage being much different, natty WILL be required to win a price war with coal for the power stack this summer. This will only happen at lower pricing. The word I am hearing is we will likely test $2 at some point this summer. I know John Arnold has loaded the boat with Z puts; $3, $3.50 and $4 strikes in size. I have doubts he is hedging length with these purchases. Call me uber bearish, looking for an all out price war this summer.