Natural Gas: From Complete Laggard to Speculative Reversal

We've been discussing natural gas the past two weeks, first as a complete laggard that was not participating; then as a speculative reversal.

I only point this chart out to disprove anyone who says speculation has nothing to do with these commodities... clearly the supply / demand dynamic has shifted 20% in just over a week.

That said, that is one nice "double bottom". Nice to see XTO Energy (XTO) bounce - they who need not give CEO $100M+ have a nice report. They beat analysts expectations even if you do include the 1x charges.

• Shares of XTO Energy (XTO Quote) got a sharp boost Wednesday from earnings that exceeded expectations on increased production during the first quarter, as well as encouraging oil-inventory data from the Energy Department.
• Excluding items, XTO said adjusted earnings for the quarter came in at $531 million, or 91 cents per share. Analysts polled by Thomson Reuters were looking for EPS of 77 cents in the quarter. One-time items in the just-ended period include $79 million in write-downs on the value of XTO's oil and gas properties. Including that charge, XTO earned $486 million, or 83 cents a share, compared with $465 million, or 92 cents a share a year earlier.
• Revenue, meanwhile, jumped 29% to $2.16 billion, up from $1.67 billion in the prior-year period and higher than analysts' targets of $2.12 billion.
• The Fort Worth, Texas, oil and gas producer also hiked its growth forecasts for the year, saying it believes gas production in 2009 will increase 16% over 2009.
• The company turned in the surprising results even as prices declined -- the average gas price in the first quarter fell 6% -- but the company offset those pressures with production volumes that ratcheted higher compared with the year-ago period. Oil drilling in shales was particularly strong, the company said.

EOG Resources (EOG) continues its nice run. Devon Energy (DVN) also had an excellent day - another throw a dart into the right sector and watch the student body trading take over. I am not a chaser type generally,but chasing has been 100% the absolute way to play anything the past 4-6 weeks.

p.s. Cisco (CSCO) beat after the bell and yes I was "shocked" and "surprised" they did it. See you 2% higher on the S&P tomorrow. After that - 27 more sessions of 2% each to all time highs.

Disclosure: No positions

Comments

[Shareholder...:]

Canadian nat. gas company rising: InterOil (NYSE: IOC) on terrific exploration results, and they're in Asia, were nat gas prices are much higher compared to the US.
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They are featured on the cover of May's "World Oil" magazine because their Antelope1 well showed the largest flow rates ever measured.
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May 07 10:55 AM

[bartpr:]

perhaps the market has begun to realize that with a production cost of $7 plus mmcf and storage eventually peaking because of rig shutdown continued pricing below production cost will not last. gas has collapsed because of overproduction based on the high price last year. this has happened before.

the less than $4 you see at the collection head does not include cost of well development or and other cost to bring gas to this point. add all this in and gas has to climb to meet economic. producers are not in business to subsidize loss.

May 07 05:57 PM

[TraderMark:]

Yes, but when I read the big producers earnings all I see is increased production - XTO, CHK et al. I realize in theory they should be shutting down wells but still production is increasing... something amiss here.

That said, when the economy does one day restart you will see shortages again and I expect commodity spikes. All we've done on nat gas is get back to where we were 3 weeks ago in price and everyone treats it like the rebirth of the new bull. Sentiment is amazing. :)


On May 07 05:57 PM bart2009 wrote:

> perhaps the market has begun to realize that with a production cost
> of $7 plus mmcf and storage eventually peaking because of rig shutdown
> continued pricing below production cost will not last. gas has collapsed
> because of overproduction based on the high price last year. this
> has happened before.
>
> the less than $4 you see at the collection head does not include
> cost of well development or and other cost to bring gas to this point.
> add all this in and gas has to climb to meet economic. producers
> are not in business to subsidize loss.

May 07 06:21 PM

[hp99:]

the problem is these guys are still tieing in wells they drilled last year while prices were higher. It will take time to see this production decline. In the mean time a slew of LNG projects are coming online and imports are expected to jump at the same pace domestic production is dropping. Add to that horrible demand that has shown no sign of improving and you are looking at storage levels that will be bursting at the seams in September. That leaves October and November with production over demand typically and no place to put the excess gas, likely means prices close $0, and producers shutting in. This little rally over the last few weeks has only insured that it will happen. We are now more expensive than coal and priced flat to over seas so likely demand has now dropped again and lng tankers will be redirected this way making the situation we are in even worse.


On May 07 06:21 PM TraderMark wrote:

> Yes, but when I read the big producers earnings all I see is increased
> production - XTO, CHK et al. I realize in theory they should be
> shutting down wells but still production is increasing... something
> amiss here.
>
> That said, when the economy does one day restart you will see shortages
> again and I expect commodity spikes. All we've done on nat gas is
> get back to where we were 3 weeks ago in price and everyone treats
> it like the rebirth of the new bull. Sentiment is amazing. :)<br/>

May 08 10:49 PM

[bones33:]

Not to mention all the hot gas coming from congress.

May 10 11:54 PM