Natural Gas: Mood Swings Subject to Weather

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.

Comments

[Pessimistic...:]

I'll bite...
Chi town just had their first snow.. winter is here folks.. My bet is CHK at 23 is due for a ramp up. It could be any of these nat gas plays, maybe XTO another personal fav. Then get a distinguished transporter like APL or KMP and you have the pin action plays likes of ACI, BTU MEE, coming to offset the use of Natty gas. Then comes JoyG/ BUCY.. then the major carriers rails.. then on and on and on..Eventually it gets to China, those folks are going to eventually get cold.. or colder.
I do think with our new elect comes the upswing of biofuels... corn based, soy oil based, PEIX's of the country unite!
ok.. not hungry anymore

2008 Nov 09 10:13 PM

[NOWHEREMAN:]

China just announced an infrasructure stimulus package approaching $600 Billion, they beat us to the punch.

They will tie up immediately available inventories of basic material surpluses even as such entities as Rio Tinto cut output of iron ore. (10%)

We will sit on our butts waiting for Barack/Bush to blink first so that each can blame the other on the short term consequences, the next 9 weeks.

2008 Nov 09 11:05 PM