Natural gas crash

Discussion in 'Commodity Futures' started by silk, Jan 7, 2006.

  1. silk


    I thought that 9's might be the bottom for natural gas. Now I'm not so sure as I see that the 15 day weather forecast has shifted dramatically warmer 3 more times today and now showing super warm temps for another 15 days.

    Note date of this post. As of Jan 7th it showed very warm temps through Jan 21'st.

    Last week natural gas inventories showed zero drawdown for the first time ever for a winter reading. Now with the prospects for 3 more low drawdown natural gas inventory reports, the potential expists for record natural gas inventories as we exit the winter season.

    In recent days major pipeline companies have even been having pipeline safety issues because there is so much supply in the pipelines because of low useage! Contrary to the media hype during the hurricanes, a natural gas glut has quickly developed.

    I can now envision a scenario where we end the winter season with record inventories of nat gas so there is really no telling how low nat gas prices could go. I think this story has potential to last longer than just the next few weeks of warm weather (Feb certainly will be colder). But the damage will be done and regardless of cold weather in Feb, inventories will be super high going into summer regardless of a few cold snaps in Febuary. The nat gas glut will last all the way into next winter I think.

    I'm not advising shorting natural gas futures after a 35% drop, but am playing it by shorting natural gas stocks that are still with few percent of all time highs after multi year bull move. Makes sense to me anyway. But maybe missing something.

    Bulls had their super spike in nat gas stocks after Katrina and Rita. Only logical that now Shorts get to party with the the super warm January.

    UPL, EOG, DVN, APA, APC, KWK, and ECA are some of the names that I think are most leveraged to natural gas. If these stocks were ever ripe for a take down, seems like it would be now.
  2. silk


    EOG just issued a Sec filing saying that they put on collars on about 10% of production for 2006.

    Based on that very few companies have hedged any significant amount of their production at the super high prices.

    I'm sure some collars and hedges were put on. But do not believe that it is a significant portion of forward production. And only the front month contracts superspiked. So point is that above stocks should remain highly leveraged to changes in commodity.
  3. I agree with you, there are better places to put your hard earned dollars in. There are other sectors that are currently showing a better performance against the CRB Index. But in the long term Natural Gas remains being a good bet.

    I still think that no matter how high they are but Gold and Oil Services still provide chances to make some buck.
  4. Chadwick


    I've been playing natural gas, mostly on the long side, since early '05 and been very successful in doing so; however, I was heavy into calls for some key NG players and ended up with more drawdown in my account than NG over the past few weeks :) I hadn't anticipated such a mild winter and low drawdown.

    That said, it's still been a nice market. I mostly agree with your sentiment, but there has been a slight correction after a three day down period. I'm holding until I see further movement.
  5. most of those stocks have significant crude oil exposure.
    apc has 2.4 billion barrels of proven crude reserves. if based on price of $15 for crude oil, they are worth $130 a share. (estimate from Fadel Gheit, Oppenheimer 1/7/2006)