Natural Gas going to 0?

Discussion in 'Commodity Futures' started by YMsystemtrader, Jul 7, 2006.

  1. What is going on with this thing?

    Has the natural gas merger mania produced companies shorting the energy strip contract to lock in gains?

    Is it just too obvious a trade with hurricane season coming up?
  2. see matthew simmons for fundamental opinions.

    I think I agree with your second premise.

    Incidentally -- supply of energy materials doesn't seem to be an issue anymore.
  3. To zero? I wish. After those $400 a month heating bills last winter.

    I've been calling around NG suppliers to see if I can lock in for the year, but no good prices yet.
  4. Rise in US nat gas production has actually well outstripped rising demand - in a nutshell not only are storage tanks flush, but excess production is flowing. Everyone and their uncle openned the taps after Katrina/Rita and then left them open ... completely different dynamic from crude.

    Now the interesting question: WTI/Henry Hub ratio has been hovering around 13 when it typically is near 6. So, is gas going back up or is oil gonna get chopped in half? (Or has the long-term ratio permanently changed?)
  5. Buh bye crude....price has been obscene....and economies are weakening....i.e. demand is going south.
  6. I don't think production is so much the issue here, as much as we had a VERY mild winter. Take a look at this:

    Look at the complete lack of consumption in winter 05. That is why we are where we are at today. The stocks are 30% above 5 year averages. But if you look at the second link, you'll see production hasn't changed all that much in the past year.

    Look at the historical and we started last October with less in storage than the previous 5 years. But an especially warm Oct-Nov period led to no drawdown, and a continued warm winter kept stocks high. This was sharply unlike even the previous year.

    So basically, with oil likely predicted to be expensive ($50/barrel or above), it is likely consumption of nat.gas will eventually catch up. If we have a cool summer and warm winter and no hurricanes, nat. gas will be dirt cheap and willful shut-ins may be inevitable. But this is the short term. If it gets too cheap, people may more liberally heat their houses in the winter, and this may offset the glut of gas in storage in the short term.

    I wonder the impact of 'expensive gas' that people knew of after Katrina had on people's use of gas, especially starting the winter. People are more likely to hold off until later to start the heater for the year if they know its extremely expensive to heat. This combined with mild weather may explain why we're at today more than anything.

    Industry and economy will respond if cheap nat. gas holds as a long term trend, and new consumption (from industry, nat.gas as alternative fuel for cars, homes in the northeast being piped for nat.gas instead of fuel oil, more power plants that use nat. gas as fuel source) will spell an end to this situation. That is, unless oil backs off well. So the long term trend for nat. gas is in the same direction as oil. There's no way this price difference (13:1 instead of historic 6:1) can continue - a natural arbitrage of sorts will occur.

    Summary: 2 year outlook for natural gas is tied strongly to the weather, but it will eventually meet crude at 6:1 price difference with a longer outlook. Too bad I can't buy nat. gas today and sell it for winter. I guess that's built into the price.
  7. which "world economies are weakening?"

    the market was cornered. and it will be until russia dumps its interest in Rosneft.

    just a hunch.
  8. Sure you can. Buy current futures, sell winter futures.

    Take delivery! :)
  9. we've already kissed the 1 handle goodbye on gas at the pump. We will be kissing the 2 handle goodbye w/in 1 year.. Just my humble opinion.
  10. Thats an opportunity - build a storage facility as well as pipeline to hook up to the hub - and merely do as you prescribe. Sounds almost silly to ask, but are there any players out there that do this?

    There must be a catch.
    #10     Jul 7, 2006