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With winter approaching, investors are presented with a trading opportunity in natural gas stocks. But the duration of this trade naturally depends heavily on the severity of winter weather.

“With rig count dropping and colder weather approaching, natural gas prices are likely to see a near-term rebound carrying the natural gas heavy companies along,” Citigroup analyst Gil Yang told clients.

At the same time, he said the industry’s success in finding large, economic, low risk and quick cycle unconventional gas projects means any price spikes are likely to be quickly extinguished with new supply.

As a result of this wealth of new inventory, a potential resurgence of liquefied natural gas imports and a weak economy that could hurt both industrial and power demand, natural gas prices in the U.S. will likely trade near marginal cost for year, the analyst said.

“Our framework is that the natural gas market will be either in a state of euphoria or misery and never in between, Mr. Yang added. “Misery when gas supplies are abundant and gas trades near its marginal cost, and euphoria when cold winter and hot summers prevail with gas at US$10-11.”

Citigroup’s long-term gas price is $8.25 per Mcf.

Source: Natural Gas: Mood Swings Subject to Weather