Why the Sudden Run Up in Natural Gas Prices?

A curiosity: Over the period from Friday, September 4, through Thursday, September 10, the price of UNG units in the market ran up from the close on September 3 of $9.01 to a close on the 10th (the Thursday of the weekly EIA NG reports) of $11.18, a 24.08% increase.

This was accompanied by a puzzling run-up in NG prices. (Click chart to enlarge.)

The reason I say "puzzling" is that the weekly EIA summary report for the previous week, issued 9/3, indicated gas in storage still 18% above 5 year averages and reported a net injection of 65 Bcf, slightly higher than the 5 year average of 64 Bcf but below last year's 92 Bcf by 29%. The way net injections have trended over the last five or six weeks, I think there is absolutely nothing unexpected or unusual about this net injection. Storage was 17.8% above the 5 year average, a slight drop from the highs in the previous weeks. Still, nothing to cause one to turn hand-springs over.

In the EIA NG Weekly Update, this week's injection of 69 Bcf was slightly higher than the 5 year average of 67 Bcf and last years injection of 63 Bcf. This leaves storage at 17.1% over last year and 17.4% over the five year average. This is a mild improvement over previous weeks "overstock", but should have been expected since rigs were dropping like flies until 6 or 7 weeks ago. In spite of this, NG finished higher on Thursday.

I heard a lot of chatter on CNBC saying the traders said short covering caused the price rise. Maybe this explains it. Maybe not. We'll consider this more a little later.

A new gas in storage record is expected at the end of injection season - 3,842 Bcf. Winter weather is predicted milder than normal, hurricane season has been a real dud, Baker-Hughes rig counts increased 7 weeks straight, demand is an anachronism that used to describe what justified producing a product, EIA expects October prices to average $2.25, everybody is expecting a big ramp-up in LNG imports, and the latest EIA-reported consumption (May and June) is in line with previous year's norms.

Nevertheless, CNBC reported the traders viewed this injection as "less than expected". Huh?!

Is it possible the traders figured all the new rigs over the last 7 weeks - now back up to 699 (2003 levels and the previous week it was 701) from 665 on 7/17, +5% - got new wells operational, hooked up to pipelines and pressurizing already? Did they expect a veritable tsunami of new injections would occur? Does this explain the view that it was "less than expected".

I'm sure the traders have at least as much information as I. And they certainly have much more experience. Combine the two and you know they are not going to be too far off the estimates of net injections. If this injection is within what I would expect (and it was), give or take a couple percent, you know they had it nailed.

I really would like to know what caused this price behavior and why the latest injection was "less than expected". As part of my steep learning curve I'm not afraid to ask questions and look ignorant. I just don't want to remain ignorant.

Anyone care to fill me in? I certainly would appreciate it.

Until I learn more, I don't believe I heard the truth.

What about the "short covering"?

The September contract closed August 27 and the October contract closes September 28. If you were short, would you be covering during a 25%-30% price increase knowing all the above? Would you be causing it? With two full weeks left until trading termination and being aware of all the above, would you feel pressured (or fearful) enough to cover now as prices ran up 25%-30%?

So, either there is something I have overlooked, certainly possible and even likely, something that I'm still really ignorant about (lots of those things, still) or there is something else going on.

Could options on NG derivatives cause this? I don't know enough about how those work to say. But even those options can trade through September 17. If everybody who was long a put closed out their positions to take profit, could such a run up be caused? What if they exercised them? Would this cause such price behavior? Certainly folks know that NG is heading down and would wait for better profit on those puts, wouldn't they? Like I said, I'm just too ignorant of this stuff to know.

What about long calls? Could a massive exercise of those cause it? This seems a distinct possibility. But if the holders knew the above, why would they hold calls now? Is it possible that some call writers were naked, got assigned and had to cover? Again, "I plead the fifth" since I'm ignorant of the mechanics of these things.

Any help on the mechanics of this would be helpful and appreciated.

On September 11, NG reversed course, getting as low as $2.77, if I recall. Last settle at 17:15 on the October contract was $2.96 and last trade was $2.98, -$0.296. I feel much better now. It's at least moving as I would expect, given my minimal knowledge and experience. If it didn't do this at some point, I would have to toss all I had worked so hard to learn as being erroneous. There's still so much to learn, but I at least felt I had begun to acquire a foundation.

Anyway, on with the story. Lets take a quick look at the UNG 200 day chart and note the nice, calm, as-expected downward trend over the last few weeks or so. Then notice what may have terrorized shorts in UNG the last three or four days. (Click to enlarge.)

Let's talk about what UNG did on Friday. UNG nose-dived back down to as low as $10.50 and closed at $10.59. If the previous ratio of the underlying futures contract to UNG NAV is still 3.08:1 (marked down from 3.45:1 formerly) and NG October futures contract closed at $2.98, UNG NAV should be around $9.18. The UNG web site shows $9.12, so I'm close enough for government work. Add in the premium. So lets use UNG site's figures $9.12 + 16.12% = $10.59. Ain't math "wunnerful"? Exactly what we'll see in the chart below.

This dive was accompanied by a couple of unusual "events".

As will be noted on the 1 minute chart of UNG trading for the day, a large price drop on very high volume began at 12:19 and ran through 14:00. Volume for this run was 19.3MM trades. This was 29.8% of the days total volume of 64.7MM trades in a time span of 1:45. Having watched UNG trading many months, I noticed these "events" and the "waterfall pattern" immediately as they were strong variations from the normal observed daily minute-by-minute price action profiles. Even allowing for the volatility of the spot NG price today, which varied up and down at various times in a range of approximately $2.93 to $3.45, this is highly unusual. (Click chart to enlarge.)

The few breaks in the down trend were all short and weak and had little breadth, another unusual variation.

Given the volatility of NG today, one might think that UNG could track it pretty closely and be just as volatile. That may be. But I have not observed this type of behavior over several months on days when NG was more volatile than usual. UNG trading tends to follow some general patterns of price swings throughout the day, less sensitive to the minute-by-minute futures or spot price changes of NG and tends to take a final leg down or up to "gravitate" towards the NG-dictated price approaching the end of trading. Seldom are big persistent uni-directional moves seen in the middle of the day. Most moves from late morning through early afternoon tend to have common patterns of up, down, consolidate a bit, repeat. And there will be some runs up $0.20 or so and similar on the way down. But overall, you see trends, breaks, reversals and consolidations over time.

On quiet days, the price range encompasses $0.20-$0.40 or so. On more volatile days, usually swings around $0.70 or so. Both ranges are rough estimates from observation and are not calculated. Regardless, the patterns tend to be as I described above.

The range for 9/11 was not highly unusual - $10.50 to $11.37. But the "waterfall" runs downward were quite exceptional. I can't recall ever seeing this pattern occur so sharply and multiple times on a continuous extended down trend in the middle of the day like this, from $11.24 down to $10.50, a 6.6% decline.

That certainly caught my eye. Then something happened.

The new UNG 8-K was listed as EFFECTIVE 2009-09-11 17:02:47. A check of the directory timestamps and the parent directory timestamps are consistent, indicating a high likelihood that these timestamps are accurate and uncorrupted. A snapshot of these items can be seen in the next three graphics. (Click graphics to enlarge.)

My first news notification, via my Power E*Trade Pro trading platform was timestamped at 17:06:16 from the Dow Jones Newswires service, as shown in the following screen-shot. The full article of the announcement was timestamped 17:38:28. (Click to enlarge ... I think.)

Well, the old "associative processor" kicked right in.

Was this related to the unusual price action I observed in UNG earlier? [Queue the theme from Jaws Maestro.]

Without access to minute-by-minute NG October futures prices, I have no way to "triage" my thoughts and identify most likely scenarios first. Given all I stated above, you already know that I believe the rise in the NG price was an oddity and had no discernible reason to occur.

That's all I needed.

Was there some manipulation and/or "front running" here? My thoughts followed this path.

• UNG has been working, for an extended time, on a structure and arrangements so that it could begin issuing creation baskets again.
• In this process, there were likely discussions needed with outside parties, possibly consultants, "authorized purchasers", exchange authorities, financial parties, their brokering party, etc.
• Plans would need to be developed and firmed up and, one could assume, coordination with multiple parties would be required to make sure all the ducks were in a row.
• "Loose lips sink ships" and may also leak useful information to interested parties.
• Someone with knowledge of UNG's implementation plans and the wherewithal would be in a position to benefit if they could cause a rise in the price of UNG prior to the announcement.
• The most certain method to do this would be to cause a rising trend over several days in the October futures contracts, using them directly or possibly by working through the spot price.
• This might also be accomplished, regardless of wherewithal, by influencing traders expectations of net injections or other factors indicating a reason that NG prices should be expected to go higher.
• Selling UNG short into the resulting rise, in unobtrusive amounts over several days, would leave one well positioned for the coming downturn. Also if one were long a ton of UNG, this could provide a dumping ground.
• With the enthusiasm for all things NG, sell siders observing the NG/UNG rise would probably get their clients to provide the needed liquidity; they could be completely ignorant of what is going on. But just look at the volume over the last five days. Another nice ramp-up low volume was 46.8MM trades and high was 64.7MM trades in those last five days.

I'd say that was liquid, no?

Well, that's it in a nutshell. Have I gone over the edge?

Should I contact the SEC or CFTC? Or somebody effective?

How about someone's mother-in-law. That would likely be more useful.

I'm not one to lean towards "conspiracy theories" often, but this was just such a golden opportunity.

I look forward to any reasoned critiques, answers that help me along my learning path and other reasonable comments.

Disclosure: long UNG (before problems started), short calls, long puts, long synthetic shorts.

Comments

[anothersuck...:]

I was watching UNG yesterday (Monday
Sept 15) and noticed a couple of very large sales occur, blocks of several hundred thousand shares, being sold suddenly, all at once, at well below the market price. I called Schwab and asked the broker about the sales, as they struck me as odd they way they had appeared on the chart . . . usually if somebody puts a big sell order in, there is a range of prices that occur, but this was just a block that appeared instantly at one price, well below the market price or even the resistance point of the stock. I at first thought it was someone trying to push the market lower, but it didn't seem to work that way, then when it happened again, I made the call to Schwabb. Funny thing, the broker couldn't figure it out, the way the sale appeared; they finally called someone else and yes, it had been an institutional trade, but no one there could quite figure out why it had appeared the way it did . . . So when I read your article, it made more sense in the context of institutional short selling in the face of an impending price drop of the ETF. Frankly, I think UNG stinks to high heaven . . . sure, we all know corruption is the name of the game, especially on Wall Street, especially with the Banking Cartel (can you say GS and JPM?) . . . but really, UNG takes the cake for manipulation, wouldn't you agree?

Sep 15 07:12 AM

[apppro:]

I don't get your point! So who did it? Should I call Julia Roberts to solve this one , too?

I hate CNBS, but maybe this time they were right. The NG and UNG shorts saw the writing on the wall and figured better run for the hills. Yesterday's movement just further goes to prove that point. Those that live by the sword (short) will die by the sword.

Sep 15 07:13 AM

[apppro:]

Oh, and what about the conspiracy theory of who created that premium in August, in the 1st place? Why didn't you ass_u_me that the shorts created that premium by massive/bulk covering AFTER the NAV-IR had closed and that would result in the explosive premium at that time.

Sep 15 07:22 AM

[bfras921:]

you have too much time on your hans

pass some gas an move on ole timer

Sep 15 07:51 AM

[Ricard:]

Interesting. I see you have accumulated a body of knowledge on UNG and NG. I will have to spend some time going through your previous stuff.

This article impressed me enough to view your profile. While I agree that emotion is a hindrance when it comes to investing, I'm of the opinion that technical investing is emotion based. Your decisions become predicated on what OTHERS do, and while this may be important, others may at times lack rhyme and reason in their actions. I must say though that your technical analysis has been the most interesting I've read in quite a while.

I'll definitely spend more time later to read what you have to say on NG. Just curious, what do you see as a good entry point into NG spot, and UNG by extension? And why do you prefer UNG to NG futures despite all the problems surrounding this trading vehicle?

Anyway, good stuff, thanks for posting.

Sep 15 07:58 AM

[pockyclips ...:]

I too, suspect manipulation. Common sense says the impending
issue of additional shares should be driving the price down 15 to 20 %.

Sep 15 08:22 AM

[H. T. Love:]

On Sep 15 07:12 AM anothersuckerbuyingUNG wrote:

> I was watching UNG yesterday (Monday
> Sept 15) and noticed a couple of very large sales occur, blocks of
> several hundred thousand shares, being sold suddenly, all at once,
> at well below the market price.

I had a similar experience a few months back on a gold miner I'm long on. But it was a fairly frequent thing over about a month.

> <snip>
> institutional trade, but no one there could quite figure out why
> it had appeared the way it did . . . So when I read your article,
> it made more sense in the context of institutional short selling
> in the face of an impending price drop of the ETF.

I never did figure what was happening on the miner. But I figured out the pattern and guessed it was being manipulated (I was even newer on the learning curve then) and made some money trading the intra-day moves. It used to reliably swing $4-$5 a day.

Eventually I sent a note to someone and the pattern stopped in 3 days. The next month, it started acting funny again, but much less frequently, much smaller price spreads, and range dropped to a couple dollars. The following month it just acted like any ol' stock.

I guess it wasn't worth it if they couldn't get the $5 price swings, or maybe they found a more fertile ground.

> Frankly, I think
> UNG stinks to high heaven . . . sure, we all know corruption is the
> name of the game, especially on Wall Street, especially with the
> Banking Cartel (can you say GS and JPM?) . . . but really, UNG takes
> the cake for manipulation, wouldn't you agree?

If you mean being manipulated, yes. As someone pointed out, it had unexpected consequences from the get go. I wouldn't have the few units I have now if I hadn't traded and made a profit on it previously. And if I had known more before I got into it. Like many, I'd like to be involved with green and NG seemed like a step in that direction, Boone was promoting his plan, I hadn't learned to leave such emotions out of investing/trading decisions, ...

Fortunately, I had learned enough that I'll make some money using the options and lots of patience if I'm anywhere close to how I think it'll play out.

Thanks for the post. Taking the time to share our ideas and experience is how we all learn.

HardToLove

Sep 15 08:32 AM

[stock man:]

People are so CLUELESS on nat gas. It is WAY undervalued and will at some point catch back up to the price of oil ratio. People trying to short now deserve to lose their ass. UNG will see 20 by February as winter may be much cooler than people think. Nat gas is the best investment there is right now with an overvalued stock market. The smart investors are going to continue to get in and the dumb investors are short or selling. Nat gas should be at 6$ very soon. It's as simple as that.

Sep 15 08:33 AM

[H. T. Love:]

My point, as stated clearly at least twice in the article, was that I would like to learn more as I couldn't connect the dots of what I had learned (still incomlete knowledge) and figured there's lots of folks out there that might be able to share and enlighten me.

Like I said I don't mind looking ignorant (lot's of practice over the years), I just don't want to stay ignorant.

Of course I don't know who did it. If I knew that, I *might* have been able to figure when, where, how and why. I would've put that in.

to CNBC, of course they could be right - it's supposedly what they get paid to do - be right. But their track record has forced me to do something strange - think for myself and invest sweat equity in trying to learn a (for me) whole new ballgame.

As too the shorts, yes. But if somebody manipulated to take them out, is that not just as illegal as manipulation to strip the longs? Seems to m that way.

Thanks for taking the time,
HardToLove


On Sep 15 07:13 AM apppro wrote:

> I don't get your point! So who did it? Should I call Julia Roberts
> to solve this one , too?
>
> I hate CNBS, but maybe this time they were right. The NG and UNG
> shorts saw the writing on the wall and figured better run for the
> hills. Yesterday's movement just further goes to prove that point.
> Those that live by the sword (short) will die by the sword.

Sep 15 08:40 AM

[H. T. Love:]

On Sep 15 07:22 AM apppro wrote:

> Oh, and what about the conspiracy theory of who created that premium
> in August, in the 1st place? Why didn't you ass_u_me that the shorts

Because I never ass_u_me anything. And I didn't in the article either. If you read it *carefully* you'll note several salient items:

- I said I didn't know why,
- I said I didn't know who,
- I said I was trying to learn and understand,
- I clearly labeled my speculation as such,
- I asked help of any who might want to help me understand,

I don't see how I could have been much clearer.

> created that premium by massive/bulk covering AFTER the NAV-IR had
> closed and that would result in the explosive premium at that time.

I felt the reason that the premium was created, as far as I could tell, was because the SEC dragged their turtle feet as usual (at least from the dates on the SEC filings - which you can review too if you have an interest) and demand was so high (check a couple of charts in other instablogs or articles I left laying around, or see my comments in various places about the volumes).

FYI, this was the second time the SEC had done this to them. If I recall, May of last year (one of my instablogs or articles has a chart and comments that can be used to confirm the time frame) and a premium was seen then too.

And before you ask, the current one was exacerbated by the CFTC acting at the impetus of a populist administration (I *guess*, not ass_u_me, and who knows who else) to address perceived problems. And it looks like demand is still high, based on trade volumes, although it is a little weaker, on average, than the 5/28-5/29 time frame.

I look forward to your future contributions to my learning! But I'll probably ignore them since you seem to be either reading or comprensionally challenged, although I don't ass_u_me such is the case. It could be something else, like a personality disorder?

HardToLove

Sep 15 08:57 AM

[H. T. Love:]

LoL! Another inveterate punster in our midst!

Thanks for lightening my day!

Good cheer,
HardToLove


On Sep 15 07:51 AM bfras921 wrote:

> you have too much time on your hans
>
> pass some gas an move on ole timer

Sep 15 08:58 AM

[receipt:]

I'm an amateur on such issues, but made over a 15% positive return on my investments in 2008, and have another positive return this year, in part by asking myself what actions the government or other people in the private sector powerful enough to influence government action would/could be taking given existing circumstances.

In the case of natural gas, perhaps long investors (such as myself with shares of HZBBF-Horizons BetaPro Double Long) believe the Obama Administration has begun implementation of an UNSPOKEN industrial policy to REVERSE the hollowing out of U.S. manufacturing jobs. Afterall, the core of their election victory strategy was to promise a rebirth of the American middle class, and you can underestimate the President if you want to, but I'm sure he realizes a key to his reelection must be such a strengthening which is impossible in a nation of hamburger flippers. Hence, he has told China (and other nations) that the trade rules will be enforced and strengthened.

I predict you'll see a renaissance of american manufacturing during the next 3.5 years and a powerful run up in both the use and price of natural gas. That's one amateur's way of connecting the dots, and there is only room for silly conspiracy theorists among those who have never held a position to influence outcomes.

Sep 15 09:02 AM

[bradiop:]

This may not explain the recent price up tick but there certainly is number of activities that could lead one to believe the demand/use of natural gas will see fairly dramatic increases over the next couple years.

Maybe it is this POV that is partially driving prices; surely the supply/demand comes into play sometime.
brad

Sep 15 09:08 AM

[W Buffett:]

Your article was relevant but sadly none of the conclusions that they draw are valid. Certainly, the current situation for NG isn't a good one, and prices have reflected that in their 75%+ YoY fall. However, since the market is a forward looking indicator, it appears that prices have fallen too much and have bounced off of their lows. The same thing happened to oil a few months ago. These cycles in commodity pricing are inevitable. Low prices cause companies to take action which increases the price in the future - high prices cause the opposite. And the dance continues...

Sep 15 09:30 AM

[The Greates...:]

Winter is around the corner, there is no supply/demand issue, just control of supply. NG is like crude except oil hanging around at $65-70 a barrel makes no sense. Look for both to fall by Dec. There is simply no where else to put it and it has to come to the market sooner or later.

Sep 15 09:45 AM

[H. T. Love:]

On Sep 15 07:58 AM Ricard wrote:

> Interesting. I see you have accumulated a body of knowledge on UNG
> and NG.

A little, but a *long* way to go to even consider myself "familiar". But I've high hopes - I'm a "sweat equity" sort.

> I will have to spend some time going through your previous
> stuff.

Be careful what you read. I often operate in "brain dump" mode when building notes for myself, which some of my instablogs are. I finally stopped doing that when I realized that folks that might like to help me learn might find that difficult to work with. So I try and use my computer for that now.

>
> This article impressed me enough to view your profile. While I agree
> that emotion is a hindrance when it comes to investing, I'm of the
> opinion that technical investing is emotion based.

That's what I had come to understand.

> Your decisions
> become predicated on what OTHERS do, and while this may be important,
> others may at times lack rhyme and reason in their actions.

That is one of the hardest things for me to work with. The best I've done so far is to try and guess what *may* be driving what I see on the charts by saying "Why would *I* do that"? Still too often I'm in the dark. But I figure if I'm careful I can survive a thousand small, cuts - but the beheading would be *deadly*.

> I must
> say though that your technical analysis has been the most interesting
> I've read in quite a while.

:-)) Interesting "good" or interesting "bad"? Being an optimist, I'll say "Thank you"!

>
> I'll definitely spend more time later to read what you have to say
> on NG. Just curious, what do you see as a good entry point into
> NG spot, and UNG by extension?

I'm a *long* way from offering anybody advice on that sort of stuff. Hell, I sometimes sweat bullets when I make a small move for *myself*. >8=O

Not often though. When I feel I've gathered enough information, I'm not indecisive. I'll jump, thinking that's the best I can do for now, let's see if I've learned something. If I see myself "sweating bullets", I usually back off, figuring I've missed something. That has mostly eliminated the bullets.

As to UNG, my conclusions have led me to advise as often as possible that *investors* avoid it as long as there is severe contango. My presumption that folks who would interact with me are new like me and may be learning as I have.

If we get to where there is a good case of "backwardation", I think a *careful* investor might be able to work with it. But I advise staying on top of the game even then and the use of options to help reduce cost basis while one is in it.

If one is a trader, I figure they probably now what they are doing. But for those new like me, I've been able to offer some characteristics that should help them (as I advise) plan entry/exit points, use options for protection or to reduce cost basis, etc.

And with the recent changes, I started advising even traders to avoid it until we see how things work out with the new strategy UNG is pursuing - OTC swaps. One of my articles discusses my concerns and suggests waiting until a couple 8-Ks come out to see how it looks.

What I'd look for - for myself - if I was to start fresh, would be for signs of turnaround in the economy, intelligent legislative action that shows a long-term push to nationally avail ourselves of the tremendous resource (keeping an eye on the pollution issues related to current "fraccing" technology - I had an idea about this that is in one of my comments) and a lot of the charts I've been developing. You'll probably see some when you peruse the instablogs.

> And why do you prefer UNG to NG futures
> despite all the problems surrounding this trading vehicle?

I don't prefer it. I entered in blissful ignorance, made a little on a trade, and entered again. With what I've learned, and patience and options I think I can make it work.

I'd probably start to dabble in the futures directly, but for two things: too much ignorance still rattling around my two remaining brain cells, and "I'm still working on my first million".

My learning methodology dictates that I keep the risk small and even mini-contracts are are not yet suitable at my current level of ignorance. With it being so volatile and subject to so many external influences, I'd have to have a lot more money to play with in my learning account and a lot more knowledge.

Since I have so much yet to learn about so much, the familiar vehicle seemed an appropriate entry into the arena. UNG allowed me to treat it much like a normal stock - small lots, in/out at will, no additional transaction costs, etc.

Of course, as I learned more, I came to understand that it was also quite different from a normal invest-able equity.

I had owned some of the pipelines and producers last year, made a little profit and felt I wasn't ready for them yet. I operate on the premise that my own ignorance maybe my worst enemy.

>
> Anyway, good stuff, thanks for posting.

I've learned so much here, I feel it's only fair to contribute as I can. Thanks for taking the time!

Oh! One last thing. I do hope that John Hyland (UNG) succeeds in making a workable vehicle. I'm sure there's so many small investors wrapped up in it know, it might be like a second market crash if it goes down.

Thanks Ricard,

HardToLove

Sep 15 09:47 AM

[SCN4:]

H.T. - I appreciate your thoughts and insight. I am right there with you trying to figure this one out. I make my living as an energy consultant, and have watched NG everyday for he past ten years, and I still can't quite connect the dots that you are trying to connect. Keep it up, and don't listen to the negative voices on here.

Sep 15 09:48 AM

[H. T. Love:]

I sincerely hope you're right. I'm long-term bullish on NG. But my investing style, which includes opportunity cost, dictates that I wait until conditions seem more certain for the appreciation I expect of this resource.

Unfortunately, to take full advantage of what it offers will require some major structural shifts. I have no faith that our elected clowns will get it right on the first shot. So I wait and learn.

If you have an interest in why I wait, I've posted some comments here and there that you can see by clicking the avatar. There's also a couple instablogs and articles that exposes my thinking.

Thanks for taking the time,
HardToLove


On Sep 15 08:33 AM stock man wrote:

> People are so CLUELESS on nat gas. It is WAY undervalued and will
> at some point catch back up to the price of oil ratio. People trying
> to short now deserve to lose their ass. UNG will see 20 by February
> as winter may be much cooler than people think. Nat gas is the
> best investment there is right now with an overvalued stock market.
> The smart investors are going to continue to get in and the dumb
> investors are short or selling. Nat gas should be at 6$ very soon.
> It's as simple as that.

Sep 15 09:55 AM

[H. T. Love:]

On Sep 15 09:02 AM receipt wrote:

><snip>

> I predict you'll see a renaissance of american manufacturing during
> the next 3.5 years and a powerful run up in both the use and price
> of natural gas. That's one amateur's way of connecting the dots,

We *all* hope you are right. But, Rep or Dem, I have 0 faith in them. If we get anywhere near what you suggest, it will not by due to politicians, I think. It will be american business (mostly small and medium sized) and people that generate the turn-around _in_spite_ of the politicians, not *because* of their actions.

> and there is only room for silly conspiracy theorists among those
> who have never held a position to influence outcomes.

*sigh* Your probably right, but would you deny us one of the few pleasures remainging in this situation - an active imagination? ;-)) We would never have had a lot of great movies with Gene Hackman, Mel Gibson, Will Smith, ...

HardToLove

Sep 15 10:02 AM

[H. T. Love:]

I agree that it has a future. I'm looking forward to it as I'm long-term bullish. But I consider opportunity cost, and that means I have to husband my meager resources until the time is right.

I figure that others may be in the same boat.

Thanks for taking the time!

HardToLove


On Sep 15 09:08 AM bradiop wrote:

> This may not explain the recent price up tick but there certainly
> is number of activities that could lead one to believe the demand/use
> of natural gas will see fairly dramatic increases over the next couple
> years.
>
> Maybe it is this POV that is partially driving prices; surely the
> supply/demand comes into play sometime.
> brad

Sep 15 10:12 AM

[Jive Dadson:]

I do not understand what is happening with UNG. It has been trading at a big premium to NAV. They announced Friday that they would again issue baskets. The purpose of issuing and redeeming baskets is to keep the fund prive in line with the NAV. So why didn't UNG decline on the announcement?

I am very confused. But it would seem that UNG will remain a great mystery until the managers and the regulators work out what's going to happen.

Sep 15 10:16 AM

[H. T. Love:]

On Sep 15 09:48 AM SCN4 wrote:

> H.T. - I appreciate your thoughts and insight. I am right there
> with you trying to figure this one out. I make my living as an energy
> consultant, and have watched NG everyday for he past ten years, and
> I still can't quite connect the dots that you are trying to connect.
> Keep it up, and don't listen to the negative voices on here.

The encouragement is certainly welcome.

As to the negatives, I welcome them. If I had to rely only on my on point-of-view and thoughts, I'd probably end up in a world of hurt. The folks on SA that expend the time and energy to share have helped me immeasurably.

That's what prompted me to try and share - how else can I repay?

Besides, I have an ego (well controlled) that lets tolerate those negatives with only short-term angst, at most.

I'm a "sweat equity" type and keep on gettin' it!

Thanks again,
HardToLove

Sep 15 10:18 AM

[H. T. Love:]

On Sep 15 10:16 AM Jive Dadson wrote:

> I do not understand what is happening with UNG. It has been trading
> at a big premium to NAV. They announced Friday that they would again
> issue baskets. The purpose of issuing and redeeming baskets is to
> keep the fund prive in line with the NAV. So why didn't UNG decline
> on the announcement?

You probably have incomplete information (?? I think we're all in that particular boat)!

They don't start issuing until 9/28. And there's lots of conditions. Click my avatar and I have a recent article and an instablog that offers my understanding of it.

>
> I am very confused.

Why do you think I wrote this article? I'm very confused too!

Ah, but such is our lot!

> But it would seem that UNG will remain a great
> mystery until the managers and the regulators work out what's going
> to happen.

I've also got an article trying to explain it for new folks like me. Maybe some of the mystery will be removed there.

Hang in, keep control, we'll all pull through if we help each other!

HardToLove

Sep 15 10:25 AM

[koolsool:]

Do you think coal producers are getting nervous with nat gas prices so low?? NG is the cleaner substitute for dirty coal for power generation. There is the natural gas act being considered in congress right now. The price of nat gas went up because someone bought it. If not short covering or a legit buyer, maybe coal producers could drive up the price artificially to keep coal looking cheaper.

Sep 15 10:39 AM

[H. T. Love:]

On Sep 15 10:39 AM koolsool wrote:

> Do you think coal producers are getting nervous with nat gas prices
> so low??

If I was in the coal business, I'd certainly thinking about my options, adn trying to figure out what NG would do over the long run.

> NG is the cleaner substitute for dirty coal for power generation.
> There is the natural gas act being considered in congress right now.
> The price of nat gas went up because someone bought it. If not short
> covering or a legit buyer, maybe coal producers could drive up the
> price artificially to keep coal looking cheaper.

Well, it would be interesting if that was the case. But that would seem to be a losing proposition - using your capital to buy a product for that reason. Wouldn't it be sensible for them, being knowledgeable about all this sort of stuff, to be *investing* in what they saw as a winner? And if it happened to raise the price, allowing them to sell coal at higher prices, it would be a win-win scenario.

If they were in it, that's the reason I would first think of.

But it was a good thought.

HardToLove

Sep 15 10:54 AM

[Jimbo:]

For what it is worth, I have read a prediction for a colder than normal winter rather than a warmer one. this might lead to some buying in speculation.

Sep 15 11:02 AM

[H. T. Love:]

Jimbo,

Last time I looked at NOAA (several months ago) they were calling for 50% of U.S. to be normal to warmer - mid-continent.

Subsequently, I've seen several posts relating that NOAA has called for warmer than normal in the northeast too due to a minor el nino.

The contrarian view was from a person that based his call for colder based on the activities of the local fauna!

hardToLove


On Sep 15 11:02 AM Jimbo wrote:

> For what it is worth, I have read a prediction for a colder than
> normal winter rather than a warmer one. this might lead to some buying
> in speculation.

Sep 15 11:08 AM

[Jive Dadson:]

I just checked the UNG web page. The premium to NAV is now "only" 7%, so it has come down. But the pending trades look horrific. To roll next time they are selling at around $3.30 and buying at around $4.33. That isn't a headwind. It's a hurricane force gale.

Sep 15 11:09 AM

[H. T. Love:]

That's not as bad as it has been. The spread as little as a week ago was a little over $1.05. And on one day I did the math they would have had a 9% differential if they rolled that day! >8=O

HardToLove


On Sep 15 11:09 AM Jive Dadson wrote:

> I just checked the UNG web page. The premium to NAV is now "only"
> 7%, so it has come down. But the pending trades look horrific.
> To roll next time they are selling at around $3.30 and buying at
> around $4.33. That isn't a headwind. It's a hurricane force gale.

Sep 15 11:21 AM

[gasbag:]

about the winter forecast, according to my mother the farmer's almanac has been far more accurate than the NOAA. from their website: "According to the 2010 Farmers’ Almanac, this winter will see more days of shivery conditions: a winter during which temperatures will average below normal for about three-quarters of the nation."

Sep 15 11:38 AM

[H. T. Love:]

Well, in all honesty, we all know that every time we get a weather forecast, we pull the shade aside and peer out the window up into the sky.

Farmers relied on the almanac for many years and we became the worrld's biggest food exporter, if I recall correctly.

'Course, we have *massive* computers now, se we can more quickly make our mistakes! >:-))

HardToLove

On Sep 15 11:38 AM gasbag wrote:

> about the winter forecast, according to my mother the farmer's almanac
> has been far more accurate than the NOAA. from their website: "According
> to the 2010 Farmers’ Almanac, this winter will see more days of shivery
> conditions: a winter during which temperatures will average below
> normal for about three-quarters of the nation."

Sep 15 11:47 AM

[SBQ:]

HTLove, have you looked at the historical season returns? UNG's low in 2007 was early September. Investors may have used that time period as a clue to start another rally. You'll notice too in 2008 that a short-lived rally occured in early September.

But no matter how you slice and dice your analysis, one thing is for sure: prices have plunged below an irrational level... Yet in the mean time, the rest of the commodities and markets continue to rise, or in the worst of cases are off their 2009 lows. Natural gas seems to be stuck in a never-ending downward spiral. Per my investment style, I refuse to take exposure to specific commodities, but I must say this looks quite inviting.

Still, this could be one of the many bear rallies we've witnessed on UNG's way down... I therefore wouldn't get too excited just yet.

Sep 15 01:55 PM

[Old Wizard:]

Maybe someone knows that a large user of transportation vehicles, political entity or automobile manufacturer is about to announce or bring to market a natural gas powered hybrid which will increase demand. I have no such knowledge, but I believe it is a good strategy for the country and sure would like to see it happening. So far, this has been rejected by the US, but it is at least feasible that it might be seriously considered by an important user of gasoline. By the way the Farmer's alminac predicts a colder than usual winter for most of the US.

Sep 15 02:26 PM

[Chris R:]

The article was a well-researched and thoughtful piece. Perhaps the sudden rise in price was a reaction to the equally sudden and precipitous drop in prices the week earlier. After all is said and done everything was pretty much as it was 2 weeks ago, but I'm sure a handful of investors made a fortune on this. I'm just a small investor whose broker has placed me in UNG but the whole thing looked fishy to me. When prices go up and down like a yo-yo and there is not a rational explanation, manipulation of the price would not seem to be a reach. Of course the SEC , IRS, and all the other alphabet bits should investigate, but don't hold your breath.

Sep 15 03:04 PM

[Aricool:]

HT, good attempt at laying out the dots, which many I've wondering myself (asked you some in your last article). Re coal, I heard (from a Bloomberg interview) that US coal usage via trains is way down lately because NG is so cheap now that many industrials who can have switched to NG. I recall that if you work out the BTU's NG beats coal under $3 mcg. I read for refiners their "gasification" biz is dead b/c of NG being too low. Don't know the technical, but I figure that there could be an industrial support component in re coal to NG switching and the (artificial) PMI boost. However, even if this is true I believe all the massively leveraged NG producers (who are all in financial risk) will pump as much as they can into these higher prices just to survive. So, I'm going to short NG > 3.6. I just missed it today, but well see if the bulls put there money where there hot air mouths are. I dare them to!

I wish those in the know would share how the dots connect, but I suspect that they're holding back for many reasons.

Keep up the good work!

Cheers,
Ariel-
On Sep 15 10:54 AM H. T. Love wrote:

> On Sep 15 10:39 AM koolsool wrote:

Sep 15 03:04 PM

[rpgpa:]

all you need to know is the conspiracy for Goldman know as CNBC issued a ":what Goldman thinks" call around 9... how many times does this scam need to happen before someone gets it. ??? You saw it with oil last year..

Sep 15 03:49 PM

[H. T. Love:]

On Sep 15 01:55 PM SBQ wrote:

> HTLove, have you looked at the historical season returns? UNG's low
> in 2007 was early September. Investors may have used that time period
> as a clue to start another rally. You'll notice too in 2008 that
> a short-lived rally occured in early September.

LoL! I was so focused on learning about the NG itself, I *completely* forgot to consider that! I'll stick that in my check-off list so I won't forget next time.

Thanks!

In order to make a lame attempt to reduce my embarrassment and save face, I'll claim my oversight was aided and abetted by the NG price trends that I had studied. Over the decades, September was a "sometimes up, sometimes down" price. But October was much more consistently the start of an up trend. In my mind, I considered all I could, figured any upside in September in the environment would be a temporary blip and... Well, we see where it took me!

G^#$$@* charts! ;-))

>
> But no matter how you slice and dice your analysis, one thing is
> for sure: prices have plunged below an irrational level... Yet in
> the mean time, the rest of the commodities and markets continue to
> rise, or in the worst of cases are off their 2009 lows.

Yep. You ought to see my 200 day chart of SPY (I'm using it as a proxy for the S&P500). Going up on an ascending wedge and it's at the apex now - 105.72 ( after it gets to >= 100, it picks up a tracking error - the SPX would be about a 1052 I guess). I keep waiting for it to break the pattern, but 90% or so of the time, it just keeps on bumping its head on that rising line. It's as if the GS computers were programmed to rise it X % each day. It's that consistent.

And the volume is really anemic. 2/10 volume was obout 543MM trades, if I recall and it trended down from there. It's been as low as 132MM trades, if I recall and today finished in the 150 range.

How can things go up almost continuously on volume that dropped continuously until it got around 150MM and hovers in that range, plus or minus?

> Natural gas
> seems to be stuck in a never-ending downward spiral. Per my investment
> style, I refuse to take exposure to specific commodities, but I must
> say this looks quite inviting.

I'm too new to even think about playing it directly yet. But maybe someday.

>
> Still, this could be one of the many bear rallies we've witnessed
> on UNG's way down... I therefore wouldn't get too excited just yet.

Well, because I work so hard and have faith in the data and conclusions I've drawn, I'm n-n-n-n- not nervous. =:-O

But it's not that I think I'm that good, it's that I've been using covered calls and rolling them to reduce cost basis, have some protective puts to limit losses (or take profits, depending) and synthetic short contracts that will make me some more if I'm right. I'll make a little more if I'm *really* right.

I'll tell ya' there just might be something to this risk management stuff - I guess I'll have to learn the math for that somewhere down the road - gut hunches won't cut it if I make enough to play with a little more money.

Thanks for the feedback. After a beer or two I'll forget all about how you embarrassed me! ;=)) ... Oh! Darn, I forgot I quit drinking when I got old enough that it was legal for me - didn't seem like so much fun! I'll live with the embarrassment, I guess. ;-))

Thanks again - this helps me learn!

HardToLove

Sep 15 05:35 PM

[Kirk Spano:]

Natural Gas went up because Goldman Sachs said it should. As soon as Goldman's new trades are in, nat gas will fall again. I for one can't help but think that nat gas spot will crack under $2 mmbtu for an day or two sometime in the next six months. With additional shares of UNG hitting market, we might get a great buying opportunity there, but likely better in leveraged companies.

Sep 15 05:49 PM

[H. T. Love:]

On Sep 15 02:26 PM Old Wizard wrote:

> Maybe someone knows that a large user of transportation vehicles,
> political entity or automobile manufacturer is about to announce
> or bring to market a natural gas powered hybrid which will increase
> demand. I have no such knowledge, but I believe it is a good strategy
> for the country and sure would like to see it happening.

There is a bill in the legislature (called NATGAS - I forget the expansion of that acronym) that aims to do something with NG. I've not looked into it yet.

DOE has set up a program that will give $100K to co's that build fueling stations. I don't know how much of dent that makes in the cost of the station, but it's something.

Ports (LA, LB, Boston, ...) have been converting drayage trucks to NG for several years now. There's quite a few metro-transit authorities convert(ed/ing) their buses. Airport shuttles, some taxi fleets. All private capital, and probably some tax breaks.

> So far,
> this has been rejected by the US, but it is at least feasible that
> it might be seriously considered by an important user of gasoline.

The problem is infrastructure right now. I think that's what the legislation will address and the DOE grants will help.

But with current vehicle usage ... hang on while I check spreadsheets ... only 0.169% of all uses, Oct 2007 - Sept 2008, it's got a long way to go.

> By the way the Farmer's alminac predicts a colder than usual winter
> for most of the US.

Yeah, Someone else mentioned that. And the NOAA is calling for warmer due to a minor el nino. I guess we'll have to wait if the tried and true old-style or the super-fast (at making mistakes) computers win this round.

Thanks for visiting, have a good one!

HardToLove

Sep 15 05:50 PM

[H. T. Love:]

Since we talked about some of this over at the instablog, and they can see what you added in your post above, I'll snip it.

Folks that want to see it can click my avatar and view the article "Natural Gas and UNG: What's Going on Here" (my original title). or take this link

seekingalpha.com/insta...

On Sep 15 03:04 PM Aricool wrote:

><snip>
> I wish those in the know would share how the dots connect, but I
> suspect that they're holding back for many reasons.

Check out SCN4's comment above. He said he's an energy consultant and looking at NG daily for 10 years and is still trying connect many of those dots.

If *he* can't tell us, I guess our only hope is a professional trader - and I don't think they would give away their secrets.

>
> Keep up the good work!

I'll keep trying! Time is an issue sometimes - I tend to focus to the exclusion of other things too long and then have to break away to catch up (weed eating is my current "guilt").

>
> Cheers,
> Ariel-

Thanks for adding that info on the conversions - I'm going to stash it for use (and then spend hours hunting for it again when I forget where I stashed it - even on my computer).

HardToLOve

Sep 15 06:06 PM

[H. T. Love:]

On Sep 15 03:04 PM Chris R wrote:

> The article was a well-researched and thoughtful piece.

Thank you.

> Perhaps the
> sudden rise in price was a reaction to the equally sudden and precipitous
> drop in prices the week earlier.

Actually, that was a pretty-much normal behavior for UNG I think (or maybe I just think it is because I expected it - the charts will tell if my second brain cell finally kicked the bucket). If you click on the 200 day chart to enlarge it and scroll around, you'll probably see several similar, but slightly smaller/larger similar movements.

> After all is said and done everything
> was pretty much as it was 2 weeks ago, but I'm sure a handful of
> investors made a fortune on this. I'm just a small investor whose
> broker has placed me in UNG but the whole thing looked fishy to me.

Well, at least he got you in when it moved up,. You ought to ask him to put some trailing sell-stops on so that if it does what I believe it will do you can still get a profit out of it. The typical price move in a day is around $0.40. A big move day typically hits $0.70 or so. A really, really, gets to about $0.85. So a trailing sell-stop around the $1.00 (or you can do it with trailing % instead) ought to protect you enough while letting your profits run.

Ask your broker about protective puts and covered calls too. One can reduce your cast at the risk of not maximizing your profits, the other gives you the right to sell at a pre-determined price. So, e.g. ifUNG runs up to $12.90 you might be able to buy a $12.00 put that protects your investment because you can exercise your right to sell at that price anytime through the last trade day - the third Friday of the month (the option expires and is worthless on Saturday).

If, like me, you don't want to be totally dependent on someone else's judgment, check out my instablogs or articles for some background information. And *lots* of other folks have posted comments in other articles too, that add information over and above what I've learned so for.

Also, use the search bar on SA and hunt for UNG or natural gas and that'll lead you to a lot of other articles, many that disagree with my views.

Being new myself, I try to give back by writing stuff I learn for others who are new like me.

*Normally*, next month would start a seasonal price rise. But with this economy, overstocked NG, weak economy, we have to be very alert that the patterns may not hold.

> When prices go up and down like a yo-yo and there is not a rational
> explanation, manipulation of the price would not seem to be a reach.

LOL. And for an imaginative soul like me its barely a lift of my little finger, much less a "reach"! ;-))

> Of course the SEC , IRS, and all the other alphabet bits should investigate,
> but don't hold your breath.

Like I said, a mother-in-law would better!

Good luck on the UNG and thanks for yakking with me.

HardToLove

Sep 15 06:46 PM

[H. T. Love:]

On Sep 15 05:49 PM Kirk Spano wrote:

> Natural Gas went up because Goldman Sachs said it should.

I didn't want to say it - I might be called a "conspiracy theorist" (say that five times fast without slobbering or slipping up).


> As soon
> as Goldman's new trades are in, nat gas will fall again. I for one
> can't help but think that nat gas spot will crack under $2 mmbtu
> for an day or two sometime in the next six months. With additional
> shares of UNG hitting market, we might get a great buying opportunity
> there, but likely better in leveraged companies.

EIA has stated that they believe *average* $2.25 for October.

'Course, they are part of the government - maybe they use the methodology that's used for unemployment rate! :-))

HardToLove

Sep 15 06:54 PM

[Mayascribe:]

HTL: Great article! The whole NG sector is a tough one to figure. I'm playing it with the high yielding pipeline stocks. Of great concern to me is whether or not Obama is going to change the rules on LLP's.

Again, great job!

Sep 15 07:09 PM

[ManAboutDallas:]

Let's use Occam's Razor, shall we ?

This is how bear markets in commodities ALWAYS end... with a sudden, mysterious, "What-in-the-world-is-... rally.

At its recent low, the price of NG was below the cost of just about every producer's cost of production. What does that tell you?

Helloooooooooooooooooo...

Sep 15 07:40 PM

[Mark Bern:]

Regarding the expected temperatures this winter. I have been predicting an early and colder winter than normal for one reason: geese that in normal years head south in mid-September left in early August. People also found it curious that animals of all kinds were heading inland to higher elevations hours before the tsunami hit Indonesia. I think we're being a little harsh when we speak in terms of the poor "dumb animals." I wonder what they think of us?

Sep 15 09:29 PM

[Mayascribe:]

Bern: Love that you're "goosing" your animal spirits!

Like a slobbering puppy seeking treats, I've been following you around all day, prodigious, wonderful writing. Thumbs up all the way! Evidently, you missed this site while on your Indiana trip.

Check out my quasi-blasting of the author in the Jaguar Mining post.

Sep 15 10:02 PM

[Vladimir Se...:]

I don't have much to say on the subject other than:
1) don't try to analyze what happens based on what someone on CNBC said about what some traders said was above or below what they expected.
2) i think natural gas demand sucks at the moment vs supply. couple with UNG being fairly large this created a situation when the tail is wagging the dog. UNG premium had to go down in some way. instead of UNG falling like most expected, NG went up. this is tail wagging the dog.

Sep 15 10:55 PM

[ripskii:]

Mark Bern: Interesting observation. My long time hunter neighbor commented about a week and a half ago about the abrupt departure of all the doves noting that they usually fly to warmer areas at the first sign of colder season to arrive. So far it has only cooled slightly, but he assured me it was an indication of a colder season to arrive and they are all gone.

Sep 16 12:38 AM

[davidaugust...:]

ng does look inexpensive and in less polluting than coal BUT it is far less politically connected. In fact Boone Pickens supposedly supported R candidates and the D are now in power so with the current pending legislation things look better for coal. Anybody invest in Canadian ng ETF?

Sep 16 12:53 AM

[Cash Flow:]

I understand, and feel that a logical and as unemotional approach as possible is a good way to solve the mystery.

I, too, have felt confused by the apparent illogical behavior of the market.

OUR MARKET ASSUMPTIONS AND VIEWPOINTS

What I have found is that some of my assumptions and viewpoints about the markets appear to be incorrect.

First, are you open to the idea that our government is not really regulating the markets with any effectiveness?

Then, are you open to the idea that our markets are not free markets and not open due to powerful money influences?

Finally, is it possible that speculators actually control our markets at times, right in front of us?

My observation is that these odd market behaviors with illogical pricing on large blocks is big money probably working with the market maker to manipulate the price of UNG for example. Often, these speculators are privy to information before it is publicly revealed.

The result? The market does not follow fundamentals. The fundamentals are being overridden by big money speculators and the market maker.

THE EVIDENCE IS RIGHT IN FRONT OF US

To see it, just look at the price behavior and volume on your charts. We do not believe the market price can change like that because certainly nobody would do it right in front of us because our market regulators are on top of it and will punish them for their illegal behavior. Certainly our broker can explain the behavior. And certainly the free market fundamentals will force these amoral speculators to behave properly.

OUR INVESTMENT APPROACH

Our approach at this time is to assume that speculators along with market makers can manipulate markets for extended periods of time.

They do it openly because they know there is no effective regulation and fundamentals (including supply, demand, weather and other factors) can be overridden by money power along with the cooperation of the market maker.

Here are some of my observations:

News is fitted to the investment price behavior to give the illusion of cause and affect by a reporter with a publishing deadline.

Obtain as many facts about the market as possible. However, there are always market unknowns. These unknowns can include information not currently disclosed to the public, derivatives, and other factors. But these unknowns will eventually and inevitably be disclosed in the daily market activity of the price and volume of the investment. Therefore, our approach must be flexible and adjusted daily as the price and volume of the investment is disclosed.

Buy and hold recommended by our investment advisors only works in a bull market. Buy and holders are slaughtered in a bear market as we have found.

Therefore, before we invest, we establish trailing stops. Next, we focus on what is happening now and adjust accordingly. As a result, we adjust to the future as it unfolds day by day.

My strategy and tactics are a constant work in process. Following this plan allows us to control risk and not be a victim of improper use of buy and hold.

I really am learning a lot from this dialog. Thank you, everyone, for your honesty and transparency.

Sep 16 02:45 AM

[Pro Pain:]

maybe this will "light a fire" under MGLG.

Sep 16 03:07 AM

[Aricool:]

HT:

<snip>
>Check out SCN4's comment above. He said he's an energy >consultant and looking at NG daily for 10 years and is still trying >connect many of those dots.

**Yes, I read that.

>If *he* can't tell us, I guess our only hope is a professional trader - >and I don't think they would give away their secrets.

***I strongly suspect that the ones in the know are producers and some top dogs in the US Energy Admin. The traders likely just know one group of dots or another, and many are just idiots trading on technicals and Bull montras for heard/momentum pump and dump. I saw one of the later on CNBC today. They asked this NG futures pit trader why NG had run up so strong, and he replied something like "well NG was way over sold, and is now restoring its historic ratio to oil, which is moving in tandum with the NG move. NG will continue to recover... bla bla bla". This is the same crap they (Fast money, Cramer, pit traders, ..ect) have been saying all the way down. I noticed that ever since the October contract got slammed out of the gate they stopped this bull hype BS. However,now that GS gave that bull call, these clowns are back to talking the bull hype w/o addressing any of the many issues at hand. For me, this further confirms that this is a temporary bull run trying to make it a crowded trade, which I bet GS (or the like) will bring to an end. I am betting that $3.6 is the sell-side line in the sand. At this price the US producers, and LNG sources will very profitably dump NG on the market. I'm shorting NG starting at $3.6 and then double up if it gets to $3.9, and stop loss above $4. I doubt NG will get to $3.6 again, but we'll see tomorrow.

As far as analyst, unless they are very plugged into the production, infrastructure, and industrial sectors of the NG complex, they could be more informed about one group of dots or another, and even if they know how the dots connect, they may not know what proper risk weightings to assign to the dots or their connection strength.

In the end, the EIA is the best positioned, so I like your leaning towards their $2.25 Oct. call. Do you happen to know how good their record is? I'm sure it is far better than GS's calls on oil.

Thanks again,
Ari-

Sep 16 03:37 AM

[H. T. Love:]

Thanks. I'm thinking about getting back into a couple of those now that I understand a little more about things. With all that may happen if the legislation goes well, pipeline operators should do fine.

HardToLove


On Sep 15 07:09 PM Mayascribe wrote:

> HTL: Great article! The whole NG sector is a tough one to figure.
> I'm playing it with the high yielding pipeline stocks. Of great concern
> to me is whether or not Obama is going to change the rules on LLP's.
>
>
> Again, great job!

Sep 16 06:16 AM

[H. T. Love:]

For *experienced* folks "Hellooooooooooooooooo... may be obvious. For me, being new in investing, trading, NG, ... it's usually more like "Hell..." >8-O and tho "oooooooooooooooooo..." is <*groan*>

But, again, your post helps me learn something if "This is how bear markets in commodities ALWAYS end... with a sudden, mysterious, "What-in-the-world-is-... rally", is reliable, or even just frequent, you've helped me along my way.

I appreciate you taking the time!

Thanks,
HardToLove


On Sep 15 07:40 PM ManAboutDallas wrote:

> Let's use Occam's Razor, shall we ?
>
> This is how bear markets in commodities ALWAYS end... with a sudden,
> mysterious, "What-in-the-world-is-... rally.
>
> At its recent low, the price of NG was below the cost of just about
> every producer's cost of production. What does that tell you?<br/>
>
> Helloooooooooooooooooo...

Sep 16 06:22 AM

[H. T. Love:]

On Sep 15 10:55 PM Vladimir Senkov wrote:

> I don't have much to say on the subject other than:
> 1) don't try to analyze what happens based on what someone on CNBC
> said about what some traders said was above or below what they expected.

Vladimir, I'm still new, but if you check my instablogs, you'll see that I do not "analyze ... based on CNBC ...", but it is one more source of input. Occasionally there is something that leads me to a clue or thought that proves productive. The problem has become that even though the channel is on, I've noticed I've been "tuning them out" and I now worry that the occasional gem is slipping by unnoticed.

>
> 2) i think natural gas demand sucks at the moment vs supply. couple
> with UNG being fairly large this created a situation when the tail
> is wagging the dog. UNG premium had to go down in some way. instead
> of UNG falling like most expected, NG went up. this is tail wagging
> the dog.

Is it safe to assume that a "reversion to the dog wagging the tail" will occur?

Thanks,
HardToLove

Sep 16 06:34 AM

[H. T. Love:]

On Sep 16 02:45 AM Cash Flow wrote:

> I understand, and feel that a logical and as unemotional approach
> as possible is a good way to solve the mystery.
>
> I, too, have felt confused by the apparent illogical behavior of
> the market.
>
> OUR MARKET ASSUMPTIONS AND VIEWPOINTS
>
> What I have found is that some of my assumptions and viewpoints about
> the markets appear to be incorrect.
>
> First, are you open to the idea that our government is not really
> regulating the markets with any effectiveness?
>
> Then, are you open to the idea that our markets are not free markets
> and not open due to powerful money influences?
>
> Finally, is it possible that speculators actually control our markets
> at times, right in front of us?

"Open to ..." - I absolutely believe that those are FACTS that I'm am too unsophisticated enough to be able to *prove*.

But being aware how it is such a human tendency to believe such things based on an emotional proclivity, I try to not let them overwhelm my thinking process. I do try to integrate them in with other facts, but as yet I don't have the confidence to know how to *properly* weight them. <*sigh*>

>
> My observation is that these odd market behaviors with illogical
> pricing on large blocks is big money probably working with the market
> maker to manipulate the price of UNG for example. Often, these speculators
> are privy to information before it is publicly revealed.

That has been my feeling ever since I bumped in to several documents for which other SA readers provided links that describe how market makers and other "insider" participants work.

>
> The result? The market does not follow fundamentals. The fundamentals
> are being overridden by big money speculators and the market maker.
>
>
> THE EVIDENCE IS RIGHT IN FRONT OF US
>
> To see it, just look at the price behavior and volume on your charts.
> We do not believe the market price can change like that because certainly
> nobody would do it right in front of us because our market regulators
> are on top of it and will punish them for their illegal behavior.
> Certainly our broker can explain the behavior. And certainly the
> free market fundamentals will force these amoral speculators to behave
> properly.

ROTFLMAO!

>
> OUR INVESTMENT APPROACH
>
> Our approach at this time is to assume that speculators along with
> market makers can manipulate markets for extended periods of time.
>
>
> They do it openly because they know there is no effective regulation
> and fundamentals (including supply, demand, weather and other factors)
> can be overridden by money power along with the cooperation of the
> market maker.
>
> Here are some of my observations:
>
> News is fitted to the investment price behavior to give the illusion
> of cause and affect by a reporter with a publishing deadline.
>
> Obtain as many facts about the market as possible. However, there
> are always market unknowns. These unknowns can include information
> not currently disclosed to the public, derivatives, and other factors.
> But these unknowns will eventually and inevitably be disclosed in
> the daily market activity of the price and volume of the investment.
> Therefore, our approach must be flexible and adjusted daily as the
> price and volume of the investment is disclosed.
>
> Buy and hold recommended by our investment advisors only works in
> a bull market. Buy and holders are slaughtered in a bear market
> as we have found.
>
> Therefore, before we invest, we establish trailing stops. Next,
> we focus on what is happening now and adjust accordingly. As a result,
> we adjust to the future as it unfolds day by day.
>
> My strategy and tactics are a constant work in process. Following
> this plan allows us to control risk and not be a victim of improper
> use of buy and hold.
>
> I really am learning a lot from this dialog. Thank you, everyone,
> for your honesty and transparency.
>

I like and agree with your strategy. For me, it is still a learning process, and will take, I'm sure, a long time for me to become competent in use of such a strategy.

You've provided another "nugget in my bucket" (I *love alliterations) as I move along the learning curve.

Now I have to practice use of the elements you provide.

Thanks for taking the time. It helps us all do better.!

HardToLove

Sep 16 06:53 AM

[H. T. Love:]

On Sep 16 03:37 AM Aricool wrote:

> HT:
>
> <snip>

I like your thoughts and believe your plans *ought* to work out. Good luck on them.

As for as the EIA track record, I'm too new to know. I'm also too time-constrained to add more digging to my efforts here.

Thanks Ari,
HardToLove

Sep 16 07:09 AM

[Plan B Econ...:]

Short term: - Who knows. It sounds obvious but news is bad until it turns good. Once the news on nat gas (e.g. inventory draws) becomes bullish, you've probably missed the boat. The time to buy is at the point of maximum pessimism (as John Templeton used to say).

Medium term: - Once oil prices rise above $80/$85 and oil sands production starts to ramp up again, nat gas (which is used in the extraction process) demand will rise.

Longer term: - Also, once oil prices rise enough to make overseas manufacturing prohibitively expensive (due to shipping costs), manufacturing will return onshore requiring greater use of local electricity (i.e. natural gas).

Of course, I'm only looking at the demand side here...this assume supply remains constant.

Sep 16 08:05 AM

[H. T. Love:]

On Sep 16 08:05 AM Plan B Economics wrote:

> Short term: - Who knows. It sounds obvious but news is bad until
> it turns good. Once the news on nat gas (e.g. inventory draws) becomes
> bullish, you've probably missed the boat. The time to buy is at the
> point of maximum pessimism (as John Templeton used to say).
>

I agree. And to counter the tendency, I've done a lot of investigation so that I believe I have a good chance of detecting the onset of bullish *fundamentals* before the trend is detected.

Real *hubris*, considering my level of inexperience.

> Medium term: - Once oil prices rise above $80/$85 and oil sands production
> starts to ramp up again, nat gas (which is used in the extraction
> process) demand will rise.

Ah! Another "nugget". I've just started trying to find all the ways NG is used. I hadn't bumped into that yet.

Thank you!

>
> Longer term: - Also, once oil prices rise enough to make overseas
> manufacturing prohibitively expensive (due to shipping costs), manufacturing
> will return onshore requiring greater use of local electricity (i.e.
> natural gas).

Shoot! The way it's going, it may not take an oil price rise. It may turn out that labor costs drop so radically in the U.S. it might be cheaper here regardless of oil. That's far-fetched, but does reflect my mood, caused by the "JobLOSS recovery" we seem to be in.

>
> Of course, I'm only looking at the demand side here...this assume
> supply remains constant.

The supply is the hard part for me. I see things happening I don't (yet) understand. I presume it's ignorance on my part that may be corrected by time and "sweat equity".

Thanks for taking the time and the "nugget". Your generosity with your time helps all of us.

HardToLove

Sep 16 08:31 AM

[thesheet:]

I believe Obama will come out with a more comprehensive energy strategy soon. Cap and Trade is only part of the strategy. I remember him mentioning that the first stimulus bill had very little energy related components to it.

I think a new stimulus bill will come out in January as part of Obamas nations address.

I believe insiders know that natgas will figure prominently AND they are acting on inside information!

How's that for a conspiracy theory!

thesheet

Sep 16 09:18 AM

[H. T. Love:]

On Sep 16 09:18 AM thesheet wrote:

> I believe Obama will come out with a more comprehensive energy strategy
> soon. Cap and Trade is only part of the strategy. I remember him
> mentioning that the first stimulus bill had very little energy related
> components to it.
>
> I think a new stimulus bill will come out in January as part of Obamas
> nations address.

I agree. Since they have a bill in legislative process already called NATGAS (standing for something about giving americans a choice) that'll probably be the timing.

>
> I believe insiders know that natgas will figure prominently AND they
> are acting on inside information!
>
> How's that for a conspiracy theory!

Better than mine!

>
> thesheet

Thanks,
HardToLove

Sep 16 10:04 AM

[bricki:]

I don't think people fully appreciate the wholesome goodness of natural gas yet. It's chemical and thermodynamic properties make it the best raw material you can have if you live on a planet with an oxygen/nitrogen atmosphere. The uses are cut across everything a modern technologically driven society could want - energy, petrochemicals, fertilizer.

And then it is a domestic market. If you believe that oil prices will continue to go up and the dollar will go down, the advantages of domestic supply will grow with these secular trends. When trade deficits are an issue, and oil prices threaten to cripple you, domestic nat gas is the obvious answer.

The only question is how long it will take for these trends to fully realize themselves. Personally I'd be in favor of incentives that would accelerate the trend away from imported oil to domestic natural gas. It is hard to think of anything that would be much better except maybe a breakthrough in photovoltaic tech. And unfortunately you can't legislate changes in quantum mechanics.

Nat gas / oil price ratio deserves to be at historic highs, not historic lows.

Sep 16 10:16 AM

[jckinswo:]

Another "dot" to consider in all this that hasn't been discussed: Take a look at the U.S. dollar index and where it's been trading during the last week or so. It's at it's lowest in a year. Might be a bit of inverse correlation there that's worth a look.

Also, in regards to the poster with the contrarian weather; a lot will depend on whether the current El Nino peaks early (if so, the FA forecast for overall colder weather in a large chunk of the U.S. could bear out ), stays about the same ("average" winter temps), or strengthens (expect warmer than normal in some areas, including the NE). Like always with the weather, "it depends".

Sep 16 11:20 AM

[H. T. Love:]

On Sep 16 11:20 AM jckinswo wrote:

> Another "dot" to consider in all this that hasn't been discussed:
> Take a look at the U.S. dollar index and where it's been trading
> during the last week or so. It's at it's lowest in a year. Might
> be a bit of inverse correlation there that's worth a look.

If we had a working ration between oil and NG, it would certainly significant. With that ratio being broken currently, and NG being a predominately locally supplied commodity, it is less effected.

However, there is another possible link that I believe I am the only one to address so far. And I've received no thoughts about it yet.

If the dollar weakens *enough*, it may be more attractive, especially if other markets are recovering more quickly and increasing demand for NG, for foreign LNG producers to sell to those economies and only dump here if they have excess supply.

A lot of posts have referenced the expected *huge* inflows of LNG to help keep prices in the U.S. depressed. I'm wondering if the dollar weakness, which seems to be continuing as I write this comment, I wonder if this will substantially reduce these imports.

I believe this is a strong possibility, which might help NG prices here recover more quickly.

Counter to that argument is the fact that some are contractually obligated to ship/receive here, for many of the LNG producers the run-rate cost is *very* low since it is a by-product of oil production that was formerly just flared. Under this scenario, if excess supply is substantial, we'll still get LNG dumped here in large quantities.

>
> Also, in regards to the poster with the contrarian weather; a lot
> will depend on whether the current El Nino peaks early (if so, the
> FA forecast for overall colder weather in a large chunk of the U.S.
> could bear out ), stays about the same ("average" winter temps),
> or strengthens (expect warmer than normal in some areas, including
> the NE). Like always with the weather, "it depends".

Now, that's useful information. I've got to check NOAA again - I *think* I remember them call for a strengthening, but I'm not sure.

Thanks for adding another nugget to my learning!

HardToLove

Sep 16 11:54 AM

[Robert Mart...:]

Hard To Love:
Well done.

Your original article and your responses show great humility and transparency in the search for profits. This is a refreshing reprieve from the hubris I often read, and restores my faith that social networking is a valuable source of investment research. It's one way that small investors can sometimes overcome the advantages of large firms (capital, staffing, research budgets, etc.) So please ignore the random snipings of the disaffected few.
____________________

Cash Flow:
I love your observation above: seekingalpha.com/artic...
"News is fitted to the investment price behavior to give the illusion of cause and affect by a reporter with a publishing deadline."

This is so painfully true it should be part of the disclosure forms at brokerage accounts. I noticed this during my first week in the business: I joined Value Line in 1985 and I was quoted on page 2 as an expert on oil prices. A reporter had to explain a price movement--simple as that.

Later, when I was managing energy funds at Schroder Capital, I ran into the Metallgesellschaft disaster of 1993-94. www.esai.com/pdf/Re-Ex... The firm went under after losing over $1 billion betting long on oil. The investment went sour, and the losses were exaggerated during margin calls and panic sales.

Here's the point: Throughout 1993, people tried to explain the drop in oil prices based on all sorts of theories, both fundamental and technical. The press and the media were baffled, and they filtered the news to fit the price.

Later, after we learned that Metallgesellschaft had been a huge seller, the media did not retract their misleading coverage of the price decline. An intellectually honest approach would have required some editor to say, as Hard-to-Love did: "Hey! Something is going on! Do some digging and find out the real story."

Lesson learned: News is written to explain the price. If you cannot understand securities prices based on what you know, BEWARE. Someone else surely DOES know, and your ignorance is their profit.

Again, Cash Flow, well put.

Rob
____________________


P.S. To Hard to Love about housekeeping:
You often include entire comments with your responses.
Alternatively, you can just link to it using the hyperlink at the bottom each comment.

There is a "Link" tag at the bottom of each comment: It appears between "Report Abuse" and "Reply". Click on this and you will be on the hyperlink for a comment (which is actually an 'anchor tag' for a specific location on the same web page). Just cut and paste this hyperlink and it will appear as an active link in your response. I did this above in my response to "Cash Flow", above.

Sep 16 12:02 PM

[Robert Mart...:]

Hard To Love:
Correction to my comment above:
"After two days at Value Line, I was quoted on page 2 of the Wall Street Journal as an oil expert." My original comment omitted the reference to the WSJ.
Rob

Sep 16 12:07 PM

[H. T. Love:]

On Sep 16 10:16 AM bricki wrote:

> I don't think people fully appreciate the wholesome goodness of natural
> gas yet. It's chemical and thermodynamic properties make it the best
> raw material you can have if you live on a planet with an oxygen/nitrogen
> atmosphere. The uses are cut across everything a modern technologically
> driven society could want - energy, petrochemicals, fertilizer.<br/>


I agree. But there are a couple of considerations. One Eye

seekingalpha.com/user/...

has made me aware of the environmental issue with the current "fraccing" technology - potential ground water pollution. I'm sure these can be addressed. The trick is to do it before it becomes a problem.

He's also raised the possibility that ultimately hydrogen may be the "final solution" and that suggests that NG may be an interim solution on the road to that. It may have an environmental problem if it requires water to produce the hydrogen as we already have problems with fresh inland water supplies in many parts of the country. But I've heard that it may use other feed-stocks, like NG(?), but I've not investigated yet.

In conjunction with that, he made me aware of Hydrogenics Corporation (HYGS), which provides distributed hydrogen generators. It seems promising, but I've not yet researchd the company or technology.

>
> And then it is a domestic market. If you believe that oil prices
> will continue to go up and the dollar will go down, the advantages
> of domestic supply will grow with these secular trends. When trade
> deficits are an issue, and oil prices threaten to cripple you, domestic
> nat gas is the obvious answer.

Yes. And that is what prompted Boone Pickes to trot out his plan last year. Since we have NG legislation in process now, it looks like he may have been effective.

>
> The only question is how long it will take for these trends to fully
> realize themselves. Personally I'd be in favor of incentives that
> would accelerate the trend away from imported oil to domestic natural
> gas.

Let's hope that is what comes out of the legislation and that the clowns don't screw it up.

> It is hard to think of anything that would be much better except
> maybe a breakthrough in photovoltaic tech. And unfortunately you
> can't legislate changes in quantum mechanics.
>
> Nat gas / oil price ratio deserves to be at historic highs, not historic
> lows.

+1

Thanks for posting. Folks taking the effort to share helps us all do better, and helps my learning process.

HardToLove

Sep 16 12:21 PM

[joeevan:]

Yes, stock man, there is good cause to believe that nat gas will move higher in the near term and in the more distant future. Industrial demand will increase as the economy improves, and demand for power generation will increase as plug-in cars come to market. Also, there is a strong push to reduce the use of coal-fired power plants, and natural gas is a viable alternative.

I'm adding to my positions in the MLPs (e.g., AHD, APL, XTEX, BBEP).


On Sep 15 08:33 AM stock man wrote:

> People are so CLUELESS on nat gas. It is WAY undervalued and will
> at some point catch back up to the price of oil ratio. People trying
> to short now deserve to lose their ass. UNG will see 20 by February
> as winter may be much cooler than people think. Nat gas is the
> best investment there is right now with an overvalued stock market.
> The smart investors are going to continue to get in and the dumb
> investors are short or selling. Nat gas should be at 6$ very soon.
> It's as simple as that.

Sep 16 12:37 PM

[H. T. Love:]

Robert,

Good to hear from you. Regarding the link "Cool". The way I normally do is to click on "Reply" and it automatically copies the text in. I then try to snip appropriately. I'm going to try your tip right here.

On Sep 16 12:02 PM Robert Martorana wrote:
seekingalpha.com/artic...

Thanks for the tip - it would allow the reader to see the whole comment even if I snipped excessively.

><snip kudos - much appreciated and thx>
><snip>

> P.S. To Hard to Love about housekeeping:
> You often include entire comments with your responses.
> Alternatively, you can just link to it using the hyperlink at the
> bottom each comment.
>
> There is a "Link" tag at the bottom of each comment: It appears between
> "Report Abuse" and "Reply". Click on this and you will be on the
> hyperlink for a comment (which is actually an 'anchor tag' for a
> specific location on the same web page). Just cut and paste this
> hyperlink and it will appear as an active link in your response.
> I did this above in my response to "Cash Flow", above.

Another "nugget" from the community!

Thanks Robert!

HardToLove

Sep 16 12:37 PM

[Robert Mart...:]

HardToLove:

Glad to help!

As for the hyperlink to a specific comment, it's a big time saver for readers. I also link to specific comments when I'm writing articles: The comments on Seeking Alpha are often better than the articles themselves (e.g. Moon Kil Woong) seekingalpha.com/autho...
Rob

Sep 16 01:02 PM

[User 402920:]

keep in mind the price of oil may retreat to correct this ratio, as opposed to NG increasing...


On Sep 15 08:33 AM stock man wrote:

> People are so CLUELESS on nat gas. It is WAY undervalued and will
> at some point catch back up to the price of oil ratio. People trying
> to short now deserve to lose their ass. UNG will see 20 by February
> as winter may be much cooler than people think. Nat gas is the
> best investment there is right now with an overvalued stock market.
> The smart investors are going to continue to get in and the dumb
> investors are short or selling. Nat gas should be at 6$ very soon.
> It's as simple as that.

Sep 16 01:16 PM

[Aricool:]

HT, or any one in the know,

Can you comment on this info I came across about NG storage:
www.eia.doe.gov/pub/oi...

See-
 Demonstrated peak working gas storage capacity as of April 2009 was 3,889 Bcf,
an increase of 100 Bcf from April 2008.
 Working gas design capacity as of April 2009 was 4,313 Bcf, an increase of 177
Bcf from April 2008.

I recall reading an official NG site, which said that NG storage is very hard to do and max storage has to be very conservative b/c of many inefficiencies and prediction errors. So, my question is that is this 4,313 Bcf number something they would try instead of flaring off NG or is the 3,889 Bcf number the real max and the other is theoretical or unusable. E.g., I read they have to keep 60% gas in the storage so it won't collapse the formation and to keep enough pressure to get the stored gas out, rock porosity/absorption is a variable, etc, etc. It is very complex. However, if the high number is possible then we may not fill storage when things actually get down to the wire.

Thoughts?

BTW, this was a good general read on the subject.:
naturalgas.org/natural...

Thanks,
Ari

Sep 16 02:53 PM

[backtoreality:]

ALL YOU GUYS ARE ALL TRYING TO BE TOO INTELLECTUAL

1. KEEP IT SIMPLE: CHECK THE WOOLY CATERPILLARS

2. CHECK THE NATURAL GAS BEING PASSED BY AL GORE AND HIS "SCIENTIFIC COMMUNITY"

3. GO TO THE RESERVATION AND ASK AN OLD INDIAN WHAT THE WINTER WILL BE

4. ASK T. BOONE FOR "TRADING TIPS"...HE WOULDN'T LIE TO YOU WOULD HE?

5. I'VE BEEN HUNTING DUCKS AND GEESE FOR OVER 50 YEARS...THEY MIGRATE BY THE CALENDAR, AND STEP ON THE GAS WHEN A BLIZZARD IS ABOUT 2 HOURS BEHIND THEM...YOU WOULD TOO IF YOU HAD TO GET TO SOUTH TEXAS BEFORE THE ROADS GET ICED UP.

Sep 16 03:36 PM

[backtoreality:]

ALL YOU GUYS ARE ALL TRYING TO BE TOO INTELLECTUAL

1. KEEP IT SIMPLE: CHECK THE WOOLY CATERPILLARS

2. CHECK THE NATURAL GAS BEING PASSED BY AL GORE AND HIS "SCIENTIFIC COMMUNITY"

3. GO TO THE RESERVATION AND ASK AN OLD INDIAN WHAT THE WINTER WILL BE

4. ASK T. BOONE FOR "TRADING TIPS"...HE WOULDN'T LIE TO YOU WOULD HE?

5. I'VE BEEN HUNTING DUCKS AND GEESE FOR OVER 50 YEARS...THEY MIGRATE BY THE CALENDAR, AND STEP ON THE GAS WHEN A BLIZZARD IS ABOUT 2 HOURS BEHIND THEM...YOU WOULD TOO IF YOU HAD TO GET TO SOUTH TEXAS BEFORE THE ROADS GET ICED UP.

Sep 16 03:36 PM

[H. T. Love:]

On Sep 16 02:53 PM Aricool wrote: here
seekingalpha.com/artic...

> HT, or any one in the know,
>
> Can you comment on this info I came across about NG storage:
> www.eia.doe.gov/pub/oi...
>
>
> See-
>  Demonstrated peak working gas storage capacity as of April 2009
> was 3,889 Bcf,
> an increase of 100 Bcf from April 2008.
>  Working gas design capacity as of April 2009 was 4,313 Bcf, an
> increase of 177
> Bcf from April 2008.

If I recall, you can't rely on the *design* capacity. There are variables unique to each storage - I don't know what they are - that makes the working capacity substantially lower. For some reason 17% sticks in mind mind, but don't quote me on it. Maybe that was an average loos percentage or such. Or maybe it was one particular example - I don't remember. Anyway, that would take it to 3.972 Tcf.

Anyway, *if* that's a useful number, we know that 100 * 83% = 83 Bcf, or about 1.3 times last week's net injection. This represents about a 2.1% increase - not going to be a *huge* help, but certainly wortwhile

><snip>

Your comments about necessary "overhead" for pressurization, avoiding collapse and such are correct, if I recall correctly.

I think that the lease/plt numbers might represent some of this overhead I haven't finished reading all the educational material there yet, so I'm not sure of this. But the terminology seems right. Checking the Oct '07 - Sep '8 numbers, that accounts for about 5.5% of production.

Again, I've not gotten familiar with all the terms yet, so this may not be related.

HardToLove

Sep 16 03:43 PM

[H. T. Love:]

On Sep 16 03:36 PM backtoreality wrote:

here seekingalpha.com/artic...

> ALL YOU GUYS ARE ALL TRYING TO BE TOO INTELLECTUAL

Not me! I let NOAA or Joe Bastardi do the "heavy lifting" for me! ;-))

> <snip>

> 3. GO TO THE RESERVATION AND ASK AN OLD INDIAN WHAT THE WINTER WILL
> BE
> <snip>

That reminds me of a joke I heard.

A young American Indian knew winter was approaching and needed to know how much firewood to gather. He went to his grandfather, who was ill and confined to bed, and asked how to tell how harsh the winter would be.

The grandfather told the youngster to just go gather some firewood.

The youngster did as instructed and each day thereafter asked his grandfather again. The grandfather just told him to gather more firewood each time.

This went on for several more cycles and the grandfather began to get irritated. So next time the youngster asked, the grandfather snapped "Go ask the park ranger"!

The youngster did as he was instructed and the ranger said confidently "It looks like it might be a colder than normal winter".

The next day the youngster went off to gather more firewood, just to be sure that he had enough. And then thought he'd better check with the ranger again. The ranger predicted "It's starting to look like tough one".

The youngster went home and the next day decided he would gather some more firewood, just to be sure, and checked again with the ranger after he was done. The ranger informed him "This is looking like a really harsh one - blizzards, ice accumulation, white-outs, ...".

The youngster thereafter gathered more wood each day, but no longer bothered the ranger, figuring it couldn't get any worse. He gathered wood every day, not wanting to get caught short.

One day a visitor asked the ranger how he thought the winter was going to be this year. The ranger confidently told the visitor of head-high snow drifts, ice on everything, blizzards such as had never been seen and temperatures consistently below zero.

The visitor asked the ranger how he could be so confident. The ranger replied "Because the Indians are gathering firewood like you've never seen before"!

HardToLove

Sep 16 04:20 PM

[bricki:]

One of the interesting aspects of ideas for a hydrogen based economy is that NG is in a lot of ways a proxy for hydrogen.

Fertilizer production using natural gas is essential a transfer of hydrogen from natural gas molecules to atmospheric nitrogen to make ammonia.

The environmental advantages of NG arise in large part because burning methane releases 4 molecules of water for every molecule of carbon dioxide, while coal releases almost pure carbon dioxide.

Honda's experimental hydrogen car starts with a natural gas based hydrogen generator in the home of the car owner which produces hydrogen for the car along with electricity for the home.

I wouldn't be particularly worried about water supplies for use in energy cycles. Yes, for some kinds of mining, especially oil shale it is a big issue. But as a source of hydrogen I don't think it will be an issue. And after all what do you get back when you burn hydrogen? Clean water.

Sep 16 06:27 PM

[J Cash:]

Does anyone out there watch the weather channel? Try turning off cnbc and start charting heating degree days against historical nat gas spot prices.... I have found, over the past 20 years, that the yield curve begins to flatten mid to late September. Go against the grain if you wish. The only reason for the overstated premium you recently bought into by cramer and others....is simple, they wanted to purchase the UNG at a lower price. And this they did, scooping up October 13-14 strike prices for a nickel per contract. this should put them well into the money just before October expiration date when the UNG breaks through 18.00 dollars per share. Don't be fooled by the build in nat gas tomarrow either....haven't you guys learned by now. HISTORY WILL REPEAT ITSELF....go with the flow, the market is beginning to make sense again. Don't let them steel your position. And please please, if nothing else do it for your family, stay long and stop trying to make a quick buck. this is a 30 day buy and hold. Natural gas is going to 5-6 a mcf. Leave your money in the ETF and go buy a jacket. Best of luck trading.

J cash


On Sep 15 07:12 AM anothersuckerbuyingUNG wrote:

> I was watching UNG yesterday (Monday
> Sept 15) and noticed a couple of very large sales occur, blocks of
> several hundred thousand shares, being sold suddenly, all at once,
> at well below the market price. I called Schwab and asked the broker
> about the sales, as they struck me as odd they way they had appeared
> on the chart . . . usually if somebody puts a big sell order in,
> there is a range of prices that occur, but this was just a block
> that appeared instantly at one price, well below the market price
> or even the resistance point of the stock. I at first thought it
> was someone trying to push the market lower, but it didn't seem to
> work that way, then when it happened again, I made the call to Schwabb.
> Funny thing, the broker couldn't figure it out, the way the sale
> appeared; they finally called someone else and yes, it had been an
> institutional trade, but no one there could quite figure out why
> it had appeared the way it did . . . So when I read your article,
> it made more sense in the context of institutional short selling
> in the face of an impending price drop of the ETF. Frankly, I think
> UNG stinks to high heaven . . . sure, we all know corruption is the
> name of the game, especially on Wall Street, especially with the
> Banking Cartel (can you say GS and JPM?) . . . but really, UNG takes
> the cake for manipulation, wouldn't you agree?

Sep 16 10:39 PM

[Boffilicious:]

Easy!!
UNG in a contango future market - that is where forward prices are higher than spot prices - is a legal ponzi scheme. (Think Madoff without breaking the law!) Thus when UNG rolls from Oct to Nov it sells Oct at say 3.75 ($37,500 per contract) and buys Nov at say 4.75 ($47,500 per contract.)
Because it invests based on net asset value of Gas contracts this means that it is selling about 100,000 Oct contracts equivalent (about 3.75 billion) and only buying 79,000 Nov contracts.
Effectively this means that during the NG roll 21,000 Nat Gas contracts were anticipated to be sold - about 20% of the entire gas market in the front month.
Lo and behold on the Friday before the Sunday when the roll is to start UNG says we are going to issue more shares starting on the 28th. Issuing more shares means buying NG contracts to cover that 21,000 expected to be forced sale.
Issuing more shares (at NAV) means the premium for UNG will disappear (accounting for a 16% drop.)
So the trade on Friday by the insider (probably closely connected) was sell UNG buy NG futures.
This will be reversed on issue of the shares by buying UNG (from the fund) and writing the swap against the futures position. A very nice 17% profit for no risk - thank you very much. And who gets to lose out - why Joe Public whose gonads have already been squeezed extremely hard by the contango - a Contango which allows those with storage access to generate risk free 600% returns (think ex Enron trader John Arnold of Centaurus - they who put the lights out in California!)
Who are the culprits of this latest act of racketeering and obvious market manipulation - well its not difficult to guess: there are only about 3 entities in the world willing and able to write sizable Nat gas swaps AND who have CFTC exemptions allowing them to hold the futures positions over the ICE and NYMEX CFTC imposed limits. Prepare for Class Action!!!!

Sep 17 12:59 AM

[indeolie:]

Apart from the fact that every investor knows the roll costs money. It's there on the screen, if you're surprised by this you shouldn't be in the commodities markets at all & stick to stocks. Comparisons with Ponzi schemes, Madoff, etc are rediculous.

Sep 17 05:06 AM

[H. T. Love:]

On Sep 16 06:27 PM bricki wrote: here
seekingalpha.com/artic...

I had wondered why NG was used in fertilizer making. Thanks for the enlightenment.

If we converted a very large part of commercial/private vehicles, has anyone considered the environmental impact of putting that much water into the atmosphere?

Ditto for hydrogen.

I only mention it because I have seen articles about "insulation effects" and also "reflectivity". Of course, if we can just make it rain more (more humidity should make that easier) where we want it to rain, we solve several problems with ...

"one swell foop"

as h00mons are wont to do.


Is the Honda unit akin to the Hydrogenics (HYGS) unit One Eye introduced me to a little while back? If so, seems a great idea. And uses NG, so no issue with water consumption.

Regarding the water in the energy cycle, you might have guessed by my comment above, it's like real estate - "Location, location, location". Having it in the atmosphere may or may not be a problem. Getting it where it's really needed is my concern.

I guess the most familiar example would be the draw-down of the Colorado River over the decades.

Great thoughts you have presented, Bricki!

THanks!
HardToLove

Sep 17 06:03 AM

[Shale Gas:]

Investors have been calling for a rally in UNG for months. So it finally happened?

Sep 17 07:30 AM

[H. T. Love:]

On Sep 17 07:30 AM Shale Gas wrote:

> Investors have been calling for a rally in UNG for months. So it
> finally happened?

Seems so, but the point that bothered me was the timing of events. NG starts rising with no *fundamentals* catalyst (in fact the opposite - rig count up 7 weeks consecutive, winter weather called mild, only the normal "economy improving", storage levels whacked, ...) and *unusual* patterns just hours *before* the filing of the 8-K detailing the 9/28 new issuance.

Boffilicious here seekingalpha.com/artic...

probably has it nailed. Now I have to study what he said, integrate with what I know, and *comprehend* what he meant and what that implies for future actions.

What's the old adage? "Even a stopped clock is right twice a day". Regardless of cause, I think that's why they ended up right. I guess that means I'm sure to be right too (assuming we are now reset and my "right" up to now no longer counts) after enough elapsed time.

I think my call for no substantial sustained price improvement until summer nears will be the test I want to pass. That'll let me know if I've been learning adequately. The normal seasonal rise should be muted, but still occur.

Boffilicious's post seems to mean that, indeed, there were nor fundamentals involved in the odd behavior. And that I can understand - folks with the wherewithal can make big $$ by whipping the rest of us around.

If I wasn't positioned they way I am, I'd probably be crying in my beer now. But now, whichever way it moves, I'm ok - as long as it *moves*.

HardToLove

Sep 17 09:33 AM

[bricki:]

I'm not worried about water consumption for hydrogen. At very worst you could condense the car exhaust to recycle to water.

Water in the atmosphere is something I haven't thought about. My guess is that it might be a local ground level issue in winter, but on a global scale there there is a giant water cycle, with rain of course bringing the whole thing into thermodynamic equilibrium it seems unlikely that there would be any climate effect.

Wikipedia has a good article on the Haber-Bosch process for ammonia. It is one of the cornerstones of the industrialized world. The chemistry behind it was a true breakthrough and won the inventors Nobel Prizes.

en.wikipedia.org/wiki/...

Sep 17 10:14 AM

[H. T. Love:]

On Sep 17 10:14 AM bricki wrote:
seekingalpha.com/artic...

> At very worst
> you could condense the car exhaust to recycle to water.

<*chuckle*> An image sparked by what you said just hit my associative processor - a depressed person tries to commit suicide by starting up the car in a closed garage and ends up just having throw his clothes in the drier - which depresses him further!

><snip>
> Wikipedia has a good article on the Haber-Bosch process for ammonia.
> It is one of the cornerstones of the industrialized world. The chemistry
> behind it was a true breakthrough and won the inventors Nobel Prizes.
>
>
> en.wikipedia.org/wiki/...

Thanks for that link - every little bit helps me along!

Heh! As with every technology we come up with, it seems to be a double-edged sword and we make sure we get the most out of the "negative" edge.

"essential for the production of nitrate fertilizer and munitions."

In this case, plowshares to swords. <*sigh*>

I look forward to seeing more from you!

Thanks,
HardToLove

Sep 17 12:35 PM

[CoffeeRampage:]

Heating oil is essentially the fuel which is used to run heavy duty furnaces and machines. Every type of mechanical industry which employs machines and equipments running on oil has a huge demand for heating oil. It is very essential that the heating oil being supplied to them is of the best quality and at subsidized rates. If the cost of heating oil is more than desirable, productivity is affected on account of the fact that it is the essential component which is used to run the machinery and without proper supply, the production process is hampered. Oil prices change on a regular basis and there is a regular fluctuation in the market price of this component.

Mostly, the reason for such uncertainty in heating oil process is the fact that the major oil consumers of the world have not taken essential steps to ensure that they maintain essential oil reserves in case of a shortfall in supply. As a result, they keep on guzzling all the oil they get. Market surveys meant to estimate oil price statistics have suggested that the price of a oil barrel has risen significantly from $3.33 per gallon to about $8.50 in the recent times.

A number of components are used as oil. Among them, crude oil, kerosene, etc form the major components. Even though they are used on a large scale, they must conform to specific standards. It has been predicted by industry experts that fuel oil burner prices are set to rise even more in the future due to the uncontrolled use of such fuels by industries across the world. They suggest that the governments should take necessary steps to curb the unprecedented change in oil prices in order to stop major companies from suffering financial setbacks.
-------------------------
Money is like muck, not good except it be spread.
www.topinvestingtips.com

Sep 17 04:57 PM

[bricki:]

Well, that person in the garage might succeed if the car depletes enough oxygen from the air in the garage. That would be a lot harder to do than the normal carbon monoxide method though.

Science is always a two-edged sword. The knowledge amplifies the efforts of man; for both good or ill.

Thanks for the kind comments.

Sep 17 05:43 PM

[davidaugust...:]

Anybody invest in Canadian ng ETF?

Sep 17 10:33 PM

[davidaugust...:]

Anybody invest in Canadian ng ETF?

Sep 17 11:47 PM

[beauble:]

I agree w/ AM stock man. NG is headed higher. I've just retired from 15 years working in a Utilities operation in a paper mill. NG is a major expense and we spend a fair amount of time tracking it. Our forecast was for NG to hit $6.50 by Feb, up from the current $2 plus. Why. A NG well does not have consistent output. The numbers I've heard are that the output from a new well drops 80% in the first two years. Think of air bleeding off a tank or from a hole in a tire. At first the flow is pretty fast & loud. Later air is still coming out but it is just a whisper. NG is a compressed vapor just like air and will behave the same. If we reduced rig count from 1600+ to 600+ late last year, we are now coming up on the second year for some of the newer wells. So, we have 700 wells, at a time when manufacturing will begin (albeit slowly) to rebound and if cap and trade passes, the only fast way for Utilities to meet the carbon cap is to fire up gas turbines used for summer peaking load.

While I'm not a huge investor, I am WAY overweight in
midstream MLPs and a few with commodity exposure. They have a very strong distribution and have increased in price ~20% over the last 2 months even with declining gas prices. My favorites right now are MWE, RGNC, KGS, and VNR.


On Sep 15 08:33 AM stock man wrote:

> People are so CLUELESS on nat gas. It is WAY undervalued and will
> at some point catch back up to the price of oil ratio. People trying
> to short now deserve to lose their ass. UNG will see 20 by February
> as winter may be much cooler than people think. Nat gas is the
> best investment there is right now with an overvalued stock market.
> The smart investors are going to continue to get in and the dumb
> investors are short or selling. Nat gas should be at 6$ very soon.
> It's as simple as that.

Sep 18 09:02 AM

[beauble:]

I agree w/ AM stock man. NG is headed higher. I've just retired from 15 years working in a Utilities operation in a paper mill. NG is a major expense and we spend a fair amount of time tracking it. Our forecast was for NG to hit $6.50 by Feb, up from the current $2 plus. Why. A NG well does not have consistent output. The numbers I've heard are that the output from a new well drops 80% in the first two years. Think of air bleeding off a tank or from a hole in a tire. At first the flow is pretty fast & loud. Later air is still coming out but it is just a whisper. NG is a compressed vapor just like air and will behave the same. If we reduced rig count from 1600+ to 600+ late last year, we are now coming up on the second year for some of the newer wells. So, we have 700 wells, at a time when manufacturing will begin (albeit slowly) to rebound and if cap and trade passes, the only fast way for Utilities to meet the carbon cap is to fire up gas turbines used for summer peaking load.

While I'm not a huge investor, I am WAY overweight in
midstream MLPs and a few with commodity exposure. They have a very strong distribution and have increased in price ~20% over the last 2 months even with declining gas prices. My favorites right now are MWE, RGNC, KGS, and VNR.


On Sep 15 08:33 AM stock man wrote:

> People are so CLUELESS on nat gas. It is WAY undervalued and will
> at some point catch back up to the price of oil ratio. People trying
> to short now deserve to lose their ass. UNG will see 20 by February
> as winter may be much cooler than people think. Nat gas is the
> best investment there is right now with an overvalued stock market.
> The smart investors are going to continue to get in and the dumb
> investors are short or selling. Nat gas should be at 6$ very soon.
> It's as simple as that.

Sep 18 10:57 AM

[H. T. Love:]

On Sep 18 09:02 AM beauble wrote: here
seekingalpha.com/artic...


> Our forecast was for NG to hit $6.50 by Feb

Well, anything is possible, but did you consider the current storage is 17%+ above the 5 year average highs? Unless the economy rebounds from its current 68.5% capacity utilization, the normal draw-down from economic activity will be lower than in a healthy economy. I guess part of my difficulty is that I just can't see the economy coming out that strong that quickly after the destruction we've seen.

EIA projects that storage will be exceeded in October and new all-time high storage records will be set. They do have a 100 Bcf designed capacity addition to storage coming available, but that should add (roughly) 1.3 weeks net injections more if my memory is correct (using 83% of design as working storage, which I'm not sure I recall correctly).

NOAA projects warmer than normal winter in middle 50% of U.S. and warmer than normal in the northeast (although that has been disputed by the Farmers Almanac, another SA article today reporting an analyst's call, and anecdotal observations of animal behavior).

*If* weather really is colder, that'll help prices come back sooner. If not, it'll be a big depressive force on prices as, again, drawdown will be lower than normal.

NG rig count has now gone up 8 consecutive weeks and is now at 705 (+6 this week) and at last is slightly above 2003 levels. Based on what I've learned so far (I'm new and learning) I don't see the prices rising as much as normal for this time of year (I've got some charts in various articles and instablogs that you might enjoy).

Some rough back of the envelope calculations, using 2003 as a basis (where our current rig count hovers) and taking market production and consumption (based on EIA data I've been working with) indicates net injections are more-or-less in-line with the what I would expect. My presumption is that the reduced GDP capacity utilization of today puts us at *approximately* at the economic level through 2003. So I feel that we'll not see a reduction in net injections soon *unless* a catalyst event occurs.

I think the depletion rate you suggest is certainly in the ball-park. But remember that the peak of 1606 rigs was hit last year 8/29 and 9/2 (if I recall) and there was *lots* of new wells opened last year and new wells continued to be opened at a high rate, though declining, all through this year so far. So a substantial percentage of those wells should be in the first year of useful life. What percent I couldn't guess.

Since they keep drilling, I presume that they are taking advantage of the higher prices available on futures contracts. If that is so, they have no reason to stop producing as long as there is a place to store the gas.

My *gut* feeling is that those in the second year of life are more than adequately covered by the new ones that came on line and (apparently) will continue to come on-line as producers keep drilling.

However, two major players did state a few weeks ago that they were exiting new on-shore E&P due to prices. It's in one of my comments somewhere I think. But that still leaves, apparently, a lot of E&P going on.

The price disparity between current NG and coal price/btu will hopefully cause faster conversion to NG by utilities. But I presume that in some cases contracts may prevent conversion as early as desired, using what is already stockpiled, etc. And if it has an effect on rates charged to customers, there may be state regulatory procedures that slow things down - I'm not sure if and how much.

The carbon issues you mention are an additional incentive - I don't have a clue how much effect that may have.

I believe your mid-stream play is one of the best ways to partake. So many folks jumped into UNG (an ETF) with little personal DD, I'm afraid they'll have to wait a long time to realize benefit.

The good thing about your mid-stream, especially if they work on price/per, rather than percentage of sale price, is they do fine as long as gas is flowing regardless of the NG price. Ones that work on percentage will have a little harder time for a while longer I think.

I enjoyed reading your post, and thanks for the tips on the co's you're into - I'm always looking for new opportunities to research.

And that's how n00bs like me keep on learning too!

HardToLove

Sep 18 04:47 PM

[msgtb:]

Credit Default Swaps (CDS) must be banned. They are intertwined throughout our financial system and cause many many of the anomalies like why is oil at $72 when it should be $36. The financial system is failed and will destroy itself if intervention doesn't come soon.

Good luck and good trading

Dave

Sep 18 07:32 PM

[Aricool:]

UNG is a ponzi scheme. Why do you think they had to issue those new shares on Sep 28? B/c otherwise, UNG would go to zero NAV in 2-3 rolls if the new money did not buy Nov contracts for them to make up for the roll yield lost money of those owning the Oct contracts. This is exactly how a Madoff ponzi scheme works. No more new money coming in to keep things looking good the scheme collapses! UNG = ponzi scheme, esp. in steep contango.


On Sep 17 05:06 AM indeolie wrote:

> Apart from the fact that every investor knows the roll costs money.
> It's there on the screen, if you're surprised by this you shouldn't
> be in the commodities markets at all &amp; stick to stocks. Comparisons
> with Ponzi schemes, Madoff, etc are rediculous.

Sep 21 02:39 AM

[Aricool:]

HT:

re where you say "I think my call for no substantial sustained price improvement until summer nears will be the test I want to pass. That'll let me know if I've been learning adequately. The normal seasonal rise should be muted, but still occur."

My research tells me 2004 is a reasonably good model for today's situation. They hit max storage on Nov 4th b/c of steep contango, it ended up not getting worked down and while Nov/Dec were up, Jan crashed back down and the whole '05 strip was pulled way down from '04 futures pricing. Without a V-shape recovery '04, or much worse will repeat. GS is completely convinced of the magical V-shaped Unicorn, so no surprise they predict $6 NG this winter and $7 for '10.

re "NOAA projects warmer than normal winter in middle 50% of U.S. and warmer than normal in the northeast (although that has been disputed by the Farmers Almanac, another SA article today reporting an analyst's call, and anecdotal observations of animal behavior)."

I'll bet on NOAA. Out here in SF I'm not watching animal's behavior, but the fog patterns tell me everything. I believe NOAA's El Nino b/c the fog on the coastal ocean has been clearing before that on land, which I've notice for the past many years only happens in winter. This has been going on for weeks now. NOAA says many of their sims predict strong El Nino, the "moderate" call was an average of all the sims. They say that the warmer southern air periodically will frequently push north and moderate (kill) Canadian cold air. On average, warmer winter days. A soft winter and high storage killed Jan '05 NG. The bulls are betting on very cold weather! Vegas slot machine odds are better!

Sep 21 02:57 AM

[Aricool:]

HT:


On Sep 18 04:47 PM H. T. Love wrote:

>Well, anything is possible, but did you consider
>the current storage is 17%+ above the 5 year average highs?
<snip>

he may also have an old play book that does not include LNG. I've read reports that LNG gets diverted from the US @ NG < $3. This is confirmed by the LNG importers petitioning Washington to allow them to re-export LNG imports b/c NG prices too low.

A couple weeks ago Conoco filed this (coincidentally?) when NG fell < 3 "*ConocoPhillips requesting authorization to export LNG, says: Due to global LNG Market conditions,U.S. natural gas demand and prices do not currently support the importation of LNG into the U.S"

Here is another snip "Conventional wisdom suggests that LNG cargos come to the United States because it has the largest available storage capacity, which is true. However, people believe that when gas prices get very low, below $3 per Mcf, LNG sellers will look for other international markets with better prices. Many of these foreign markets have linked their LNG pricing to crude oil prices, which was partially the reason why we heard of LNG cargos going for $18-$20 per million Btus (roughly per Mcf). Why would LNG sellers want to dump their gas into the U.S. if gas prices are so low? Well, what if you make so much money from the sale of the natural gas liquids (NGLs) contained in the gas streams utilized to produce the LNG that the gas actually has a negative value?"

>EIA projects that storage will be exceeded in October
>and new all-time high storage records will be set.

**in 2004 max design storage was 4 tcf, and peak working was est. @ 3.6 tcf; however, they found out that when it actually got to 3.3tcf the pipeline pressures got to high and they declared storage filled 10% earlier than expected. I wonder if the same thing can happen now. That is, 3.9 tcf is supposed to be "conservative", but the problem is that the salt mines are probably full and the gas will have to go into the very slow filling reservoirs, which will cause higher pipeline pressures. I wonder if the OFO's already seen are an early sign of this. I read they normally lift OFO stop orders after Labor day, so if I see more OFO's I'll be thinking pressures are building faster than expected and peak storage may actually be less than expected. Thus, a NG sell of in Oct.

>They do have a 100 Bcf designed capacity addition to storage
>coming available, but that should add (roughly) 1.3 weeks net

**I've read that b/c of the credit crisis many storage projects were killed this year and are already loosing big $. Is this fabled 100 bcf capacity done and being tested (which takes a while)?

>NG rig count has now gone up 8 consecutive weeks and is now at
>705 (+6 this week) and at last is slightly above 2003 levels.
I've read a report that says the new norm (due to LNG) could be 800 rigs for the next several years. So, beware of NG service sector stocks. If true, then the current rigs are plenty for '10 demand. Also, check the #'s and you'll see that the majors are pumping much more with less wells/rigs. Also, not all well die so fast and they cap pop new wells in days. I have a stock (DBLE) who said in the last earnings call that there wells are lasting much longer than the reported norms. The shale plays have only been drilling since 2003 so not enough data!

>Based on what I've learned so far (I'm new and learning)
>I don't see the prices rising as much as normal for this time of year

Hey, re that $2.3 NG Oct # you quoted from the EIA, when reading their weekly report I noticed that was for the *spot* market price, not NYMEX. The spot market is the 'wild, wild, west" on steroids. Spot prices on the Colorado Interstate Gas pipeline hit an intraday low of 15 cents on June 4. Spot gas prices at Chicago Citygate have ranged between $5.75 and $7.75/MMBtu during that time. When those OFO's bar a producer from injecting into storage, they have to dump into the spot market at what ever price they can get.

Now, the big question I have is what are the mechanics of the spot market causally dragging down the NYMEX front month. I'm currently researching this, but no time yet to dig. I can tell you the mechanism is call "gas on gas" competition, but I don't know the mechanics yet. Can anyone explain? As storage begins to fill this will occur in various regions before the last of the storage system is actually filled and all production gets dumped into the spot market- likely at sub $1. GS must be very plugged in, but right now they look either like hustlers or crap shooters. I'm thinking the former.


<snip>
>through this year so far. So a substantial percentage
>of those wells should be in the first year of useful life.
I tend to agree.

>Since they keep drilling, I presume that they
>are taking advantage of the higher prices
>available on futures contracts. If that is so, they
>have no reason to stop producing as long as there
>is a place to store the gas.

Exactly! Storage = money in the bank so there should be a race to be the first to fill it up. The fact that injections were below expected (while being much above the EIA's assumed # of 57 bcf/wk until end Oct) makes me think that filling storage is being limited by high pressure problems in the system (which should slow down injection rates), and not demand outstripping the ability for producers to pump enough to generate cash flow so they can survive. Did you know that for producing wells, marginal operating costs (excl. overhead and interest) are approximately $2/Mcf. So, they will for sure keep pumping down to $2, and likely down to $1 for cash flow needs. Thus, as far as I can tell, it is a race to fill storage until the music stops and rest of the producers are left without a chair in this game of musical chairs.

Any bulls out there that can factually shoot down my above fact pattern?

>My *gut* feeling is that those in the second year
>of life are more than adequately covered by the new
>ones that came on line and (apparently) will continue
> to come on-line as producers keep drilling.

*I agree. I just read a detailed agreement for Nat Gas land owners, which included an income analysis and quotes a comprehensive study that put horizontal well 1st year drop at ~56%, 2nd year @ 27%, 3rd yr @ 18%, and then ~8% drop annually until year 7 when they have to refrac it. Verticals were about the same. So, 50% of rigs will not only cover the 1st year drop but add 50+% production capacity.

<snip>
>The price disparity between current NG and
>coal price/btu will hopefully cause faster conversion
>to NG by utilities. But I presume that in some cases
>contracts may prevent conversion as early as desired,
>using what is already stockpiled, etc.

coal is pretty cheap now b/c of NG. It is my understanding that alot of demand in 09 is fuel switching from coal, which will evaporate once NG heads above $4/mmcf. However, for those who can buy/use NG off the spot market, they'll likely ditch coal.

BTW, I've heard Canada's storage is likely to fill before ours, and then they'll start dumping into the US. This all seems like a train wreck happening in slow motion.

Oh, for all the bulls out there, listen to GS and buy, buy , buy!

Cheers!
Ari

Sep 21 04:00 AM

[Aricool:]

HT,

My understanding has always been that a strong El Nino kills hurricanes b/c a hotter pacific means a cooler Atlantic; i.e., no name storms now that we are past season peak, and ending quickly, is a strong indicator that it is not a mild El Nino, but a moderate to strong one. Thus, winter should very likely be below average to mild.

This continues to be a perfect storm against NG. GS is the only thing it's got going for it this year.

Ari-


On Sep 15 11:08 AM H. T. Love wrote:

> Last time I looked at NOAA (several months ago) they were calling
> for 50% of U.S. to be normal to warmer - mid-continent.
>
> Subsequently, I've seen several posts relating that NOAA has called
> for warmer than normal in the northeast too due to a minor el nino.
>

Sep 21 04:25 AM

[H. T. Love:]

On Sep 21 04:00 AM Aricool wrote: here
seekingalpha.com/artic...

Ari:,

Great comments! You've filled another couple holes for me.

This weekend, I was working an a (hopefully) short article to try and warn UNG (predominately) and bullish NG folks about issues they should consider.

After the first few paragraphs, I said "I've got to add a link to this comment" to that article.

Even if I had the time, I'm not sure I could come up with some of the stuff you've ferreted out (lack of background still hampers me).

Anyway, I can't tell you how much I appreciate your generosity in sharing.

Thanks,
HardToLove

Sep 21 07:17 AM

[H. T. Love:]

On Sep 21 04:00 AM Aricool wrote:

"horizontal well 1st year drop at ~56%, 2nd year @ 27%, 3rd yr @ 18%, and then ~8% drop annually until year 7 when they have to refrac it. Verticals were about the same. So, 50% of rigs will not only cover the 1st year drop but add 50+% production capacity"

Quick question: are those percentage declines against original production levels or sequential drops? I.e. are they (OP= Original Production Level) OP * .56, OP * .27, ... or (CP=Current Production level, initially = OP) CL * .56, CL * .27, ...

The time frame & progression sounds like it would be CL?

Thanks,
HardToLove

Sep 21 07:36 AM

[H. T. Love:]

Arghh! (Talk like a pirate!)

More coffee needed!

On Sep 21 07:36 AM H. T. Love wrote:

><snip>
I wrote
> (CP=Current Production level, initially > = OP) CL * .56, CL *
> .27, ...

And I meant
(CP=Current Production level, initially > = OP) CP * .56, CP *
> .27, ...

Sorry,
HardToLove

Sep 21 07:39 AM

[Steve_In_CA:]

On Sep 21 02:39 AM Aricool wrote:

> UNG is a ponzi scheme. Why do you think they had to issue those new
> shares on Sep 28? B/c otherwise, UNG would go to zero NAV in 2-3
> rolls if the new money did not buy Nov contracts for them to make
> up for the roll yield lost money of those owning the Oct contracts.
> This is exactly how a Madoff ponzi scheme works. No more new money
> coming in to keep things looking good the scheme collapses! UNG =
> ponzi scheme, esp. in steep contango.


Ari, the contango loss only occurs if the Nov contract price
falls when the Oct contract goes away. That difference is
closing, down to about .80 today. I have not been observing
this trade for very long but the UNG price history does not seem to show that UNG has fallen at the start of each month like it did in October. I don't know how long the
contango has been on.

As a newby i'd like to ask:
Assuming that the price difference were to stay at .80 until
Sept 28 what action would you expect if there were no change in UNG's policy (ie if they were not able to open new contracts)? Does past data show that the Nov contract should drop immediately by .80? The prices are slowly closing and the diff may be smaller by 9/28, but if not, would not everybody and their mother be shorting UNG if the closing of the contango gap were automatically resolved by dropping the Nov price to the last day price of the Oct contract?

But given that UNG may start buying new Nov contracts right away, what cross currents would you expect -- do you expect that buying demand to keep the Nov contract from falling the .80 (or whatever the diff as of last trade for Oct)?

FWIW, from news Bloomberg Barclays analyst is looking for another drop below $3...more wild rides ahead?

N.Y. Natural Gas Set to Decline Below $3: Technical Analysis
Share | Email | Print | A A A

By Reg Curren

Sept. 21 (Bloomberg) -- Natural gas futures, which jumped 28 percent last week, may revisit seven-year lows after surging into an “overbought” area of resistance between $3.58 and $3.87 per million British thermal units, according to a technical analysis by Barclays Capital.

Gas tumbled 82 percent from a high of $13.694 per million Btu in July 2008 to touch $2.409 on Sept. 4. Gas then surged 57 percent through Sept. 18. The futures have entered a resistance zone and the downtrend is likely to resume, MacNeil Curry, a New York-based analyst at Barclays, said in an interview.

“We’re around the high end of this resistance zone and things are overbought,” Curry said. “This is still an environment where bounces should be sold. I would look for it to” test $2.409 again.

Natural gas for October delivery rose 32 cents, or 9.3 percent, to $3.778 per million Btu on Sept. 18 on the New York Mercantile Exchange.

“The burden of proof remains with the bulls,” Curry said in a note to clients. “Since November 2008, overbought readings have coincided with market highs and a subsequent resumption of the bear trend.”

Gas futures have rallied and then sold off at least five times this year. Curry correctly forecast on July 23 that gas would plunge below $3.

Technical traders monitor patterns on daily charts for clues to price direction, and may sell or buy based on those signals.

Sep 21 06:33 PM

[H. T. Love:]

On Sep 21 06:33 PM Steve_In_CA wrote: here
seekingalpha.com/artic...

"Ari, the contango loss only occurs if the Nov contract price
falls when the Oct contract goes away"

Steve, the loss occurs at the time of roll, regardless of subsequent price action on the new contract. See this comment I posted here

seekingalpha.com/autho...

Buried in there is a practical example.

"As a newby i'd like to ask:
Assuming that the price difference were to stay at .80 until
Sept 28 what action would you expect if there were no change in UNG's policy (ie if they were not able to open new contracts)?"

The price change of the contract, once purchased, has only effect on NAV (Net Asset Value) and, possibly, market price. For some reason, folks continue to ignore the long-term chart of UNG and jump into it as if it was "the latest and greatest". My *guess* is that a lot of sell-siders that have done no DD are advising people it's a great investment because NG has got to go up and there's no way to lose. So they paid a premium up near 20% during the period when no new baskets were created.

"Does past data show that the Nov contract should drop immediately by .80?"

No. Theoretically, there is no connection between the value changes in the futures contract and the purchase of a contract by ING. In practicality, folks know the roll schedule, know that UNG will be selling a big block of front-month and buying (slightly smaller if contango exists) big block of the next-month out contract. I'm sure they take advantage of this. By manipulating the front-month price lower just as roll starts, and the next month higher, they can gain profit. Under this scenario, it might be reasonable that the contracts UNG owns after the 4-day roll period could drop off, but not right away. After all, the traders who might have manipulated the prices don't make as much if they drove the price up and then it immediately drops.

By the way, if you check my other articles, you'll see evidence of manipulation of UNG for sure (>= 60% of the time it bottoms during the roll period, and trends down towards that leading up to the roll period).

"The prices are slowly closing and the diff may be smaller by 9/28,"

This is an effect of two or three things I think. First, apparently there were a lot of shorts covering that popped the price. This has not been confirmed from any reliable source that I know and I don't know how much weight to assign that "rumor".

Second, September sometimes begins a trend of rising prices that occurs during the run-up to and through a good part of winter. It did this last year, if I recall correctly. I think many folks just remember last year and decided this was the time to get in. October is the month more consistent start of this seasonal price trend.

Third, folks don't seem to do much DD and seem to be unaware of current storage issues, OFOs (Operational Flow Orders) and seasonal maintenance that are likely to restrict supplier injections and apparently that the GDP indicates that we are operating at only 68% of capacity, which should reduce NG demand in several areas.

Oh! And the yip-yap about all the "green initiatives" probably has them all believing that NG usage is about to go through the roof, without considering the above along with infrastructure and conversion issues.

"but if not, would not everybody and their mother be shorting UNG if the closing of the contango gap were automatically resolved by dropping the Nov price to the last day price of the Oct contract?"

As mentioned, it is not automatically resolved, and everybody I hearing is shorting UNG.

"But given that UNG may start buying new Nov contracts right away, what cross currents would you expect -- do you expect that buying demand to keep the Nov contract from falling the .80 (or whatever the diff as of last trade for Oct)?"

It hasn't in the past. o to stockcharts.com and make a chart of UNG and you'll see that. In response to another's comments somewhere, I had occasion to think about the effect of UNG on the underlieing's prices. Other than the sort period during/around roll, I feel that it tends to push prices down, long-term, because it encourages producers to keep product flowing even though it far outstrips demand. Thus, storage expected full, by EIA, in October. Short-term, it could raise the price because it creates a "false demand" for more futures contracts, raising their price and making it attractive for producers to sell those contracts and lock in a good price for their product.

Of course, this is pure deduction on my part.

"FWIW, from news Bloomberg Barclays analyst is looking for another drop below $3...more wild rides ahead?"

Bloomburg's being too generous. EIA is calling for an *average* October price of $2.23. Of course, that is a "blend" of prices from different pricing locations and I have no knowledge of the history of EIA accuracy.

HardToLove

Sep 22 03:07 PM

[Steve_In_CA:]

HTL, I'm much obliged to you for your informative articles
and comments!

We may or may not be in small disagreement. As i see it the
cost of the NG contract roll is the fees you describe in your
example as 1% cost. I assume this may includes bid-ask spreads
UNG may have to pay. Of course there is also the effect
on the prices during UNGs roll period, of the fact that traders
can game them, and we would expect traders to drop the bid
on the current month and increase the ask on the next month
when they know that UNG is rolling. Of course the delta between
the 2 contracts decreased rather than increasing last week
as UNG was rolling out to Nov.

The trading costs of the roll seem to be small, tho given they do
it every month, even 1% is huge if you think you can buy and hold
UNG. The contango effect on the contract prices seems like it
should be far bigger -- with a 19% difference between what the
Oct contract is today vs the Nov contract. if the Oct contract
were to stop trading today, tomorrow would show a giant
discontinuity in 'current month' price if the Nov price stayed
where it is today. Hence there seems to be a HUGE danger of
the Nov contract trading down very quickly from 4.50 to 3.50
if there is not a huge demand to hold up the 4.50. This seems
far more dangerous short term than UNG losing maybe %1 during
its trades due to trading costs.

I agree with your conclusions completely. I was foolishly long UNG
before buy I'm buying UNG puts in expectation of seeing a drop next
week in the Nov contract and in UNG. Even without the contract
going below 3.00, heck even at 3.50 it would be almost 20% drop
from todays price of 4.53 to get the Nov price down to the closing
trade of the Oct contract (assuming it closed today. in reality
it stops trading after next monday 9/28, that is the last day to
trade the Oct contract, right? The contango increased today
so it's not even moving in the direction of convergence!).

Again, thanks a lot to you, Ari, Diane and others who have
shed a lot of light in this in your articles and discussions. It's
been very helpful in understanding this butt-ugly UNG beast.

Sep 22 04:01 PM

[H. T. Love:]

On Sep 22 04:01 PM Steve_In_CA wrote: here
seekingalpha.com/artic...

> HTL, I'm much obliged to you for your informative articles
> and comments!

Well, by now I'm sure you realize that I'm also a n00b, have learned much from the generosity of other SA "netizens" and sharing what I may learn is the only way I can "repay" their generosity.

Plus, it is "enlightened self-interest". The more folks that constructively participate, the more we all learn and the better we all do, on average.

It's our only "weapon" against various interests that make this market biased towards "fleecing" us. It also introduces thoughts that I may have overlooked and items of which I am ignorant.

That's why you'll I almost always reply for at least a few days after publication and see at least one "thumbs up" for all who constructively give of their time and energy - it's important they know I appreciate it.

Your comments are also appreciated.

By the way, that EIA forecast for the October average price was supposed to be $2.25 - typo struck again! :-((

>
> We may or may not be in small disagreement. As i see it the
> cost of the NG contract roll is the fees you describe in your
> example as 1% cost. I assume this may includes bid-ask spreads<br/>

If I remember, I only added fees in so I end each step with a full share, instead of fractional shares. I just used a fee that allowed that. I didn't intend that it should represent any real number or value.

> UNG may have to pay. Of course there is also the effect
> on the prices during UNGs roll period, of the fact that traders<br/>can
> game them, and we would expect traders to drop the bid
> on the current month and increase the ask on the next month
> when they know that UNG is rolling. Of course the delta between
>
> the 2 contracts decreased rather than increasing last week
> as UNG was rolling out to Nov.

The spreads have narrowed considerably the last few weeks, as a result I guess, of the run up in front month price. For a long time that spread exceeded $1.05 and worsened "as far as the eye could see". Now we see the potential "normal" configuration in Feb-May. Let's hope it holds and grows. Of course, this is also a side-effect of "seasonal" expectations I think.

One day awhile back, if the roll had occurred that day, UNG would have owned 9%+ fewer contracts after completion of the roll. This is "negative roll yield" over time "compounds". Whether it's 1% or 10%, the only cure for this is a period of "backwardation" and price configurations of long enough duration to "gain back", a "positive roll yield".

> <snip>
> Hence there seems to be a HUGE danger of
> the Nov contract trading down very quickly from 4.50 to 3.50
> if there is not a huge demand to hold up the 4.50. This seems<br/>far
> more dangerous short term than UNG losing maybe %1 during
> its trades due to trading costs.

If it was only trading costs, yes. Trading costs, if I recall, have never been the major emphasis of concern - it's just an "also" item. Contango was always the major "enemy".

> <snip>

> it stops trading after next monday 9/28, that is the last day to
>
> trade the Oct contract, right?

Yes. You can always check here www.nymex.com/ng_fut_t....

><snip>

HardToLove

Sep 23 07:49 AM

[Aricool:]

HT,

Thanks for effectively answering all those questions. Re the below one, though, in a prior post I had mentioned that this $2.23 EIA Oct target was for spot prices, not the NYMEX. In the past, when storage gets filled up the spot market has been $1-3 below NYMEX. Much of thoses OFO and non-allowed injections get dumped into the spot market. This should drag down the front month but I cannot figure out a deterministic mechanism of how they are related. To me, that is a kind of "shadow storage" that hides how bad things are and can make lower injections seem like good news. Now, if consumers are able to store and/or use a lot of gas off the spot market until Dec, then they would buy less NYMEX contracts, which could drop the futures prices, but b/c consumers are such a small % of NYMEX NG, even that supply/demand market mechanism is completely distorted. From what I can tell it is just the bull and the bear speculators that will drive the futures based on headlines and tactical opportunities. I should not take much bad news to cause a land slide, though. I'm expecting this year to be a combination of the demand destruction aspects of '02 with the maxed storage aspects of '04; hence, double dip is very likely, but Sept. could have been the lows. However, weather is the big variable in my mind. If Nov is average to mild, I expect Dec NG to plummet sub 3, and even towards 2.

BTW, glad you found my last posting very informative. This is a tough nut to crack. I really wonder what GS knows and is up to. My guess is that the same crew that ran NG up on fake good news will also slam it down on some bad news event to come. Next time hitting stop losses of the longs one after another going the other way.

Cheers,
Ari-
On Sep 22 03:07 PM H. T. Love wrote:

> Bloomburg's being too generous. EIA is calling for an *average* October
> price of $2.23. Of course, that is a "blend" of prices from different
> pricing locations and I have no knowledge of the history of EIA accuracy.
>
>
> HardToLove

Sep 23 02:35 PM

[Aricool:]

HT,

Thanks for effectively answering all those questions. Re the below one, though, in a prior post I had mentioned that this $2.23 EIA Oct target was for spot prices, not the NYMEX. In the past, when storage gets filled up the spot market has been $1-3 below NYMEX. Much of thoses OFO and non-allowed injections get dumped into the spot market. This should drag down the front month but I cannot figure out a deterministic mechanism of how they are related. To me, that is a kind of "shadow storage" that hides how bad things are and can make lower injections seem like good news. Now, if consumers are able to store and/or use a lot of gas off the spot market until Dec, then they would buy less NYMEX contracts, which could drop the futures prices, but b/c consumers are such a small % of NYMEX NG, even that supply/demand market mechanism is completely distorted. From what I can tell it is just the bull and the bear speculators that will drive the futures based on headlines and tactical opportunities. I should not take much bad news to cause a land slide, though. I'm expecting this year to be a combination of the demand destruction aspects of '02 with the maxed storage aspects of '04; hence, double dip is very likely, but Sept. could have been the lows. However, weather is the big variable in my mind. If Nov is average to mild, I expect Dec NG to plummet sub 3, and even towards 2.

BTW, glad you found my last posting very informative. This is a tough nut to crack. I really wonder what GS knows and is up to. My guess is that the same crew that ran NG up on fake good news will also slam it down on some bad news event to come. Next time hitting stop losses of the longs one after another going the other way.

Cheers,
Ari-
On Sep 22 03:07 PM H. T. Love wrote:

> Bloomburg's being too generous. EIA is calling for an *average* October
> price of $2.23. Of course, that is a "blend" of prices from different
> pricing locations and I have no knowledge of the history of EIA accuracy.
>
>
> HardToLove

Sep 23 02:38 PM

[eColi:]

I got in UNG b/c it was too cheap not to, when it was under $10.
Institutional buyers have a minimum pps of $10 in many cases, and all their alarms were probably going off to make sure they were in for the heating season. Demand will soon exceed supply.
www.eia.doe.gov/oil_ga...

Oct 16 01:51 PM

[eColi:]

I got in UNG b/c it was too cheap not to, when it was under $10.
Institutional buyers have a minimum pps of $10 in many cases, and all their alarms were probably going off to make sure they were in for the heating season. Demand will soon exceed supply.
www.eia.doe.gov/oil_ga...

Oct 16 01:51 PM

[H. T. Love:]

Now, that was a good move. Taking *some* profits or protecting with puts should leave you in good shape. If the strips hold there current pattern, we could see all the contango gone Fed-May and maybe even backwardation. That would then start to give a really good profit to you.

Congrats!

HardToLove


On Oct 16 01:51 PM eColi wrote:

> I got in UNG b/c it was too cheap not to, when it was under $10.
>
> Institutional buyers have a minimum pps of $10 in many cases, and
> all their alarms were probably going off to make sure they were in
> for the heating season. Demand will soon exceed supply.
> www.eia.doe.gov/oil_ga...

Oct 16 02:48 PM

[H. T. Love:]

Crap! Meant to say "protecting with options".

HTL


On Oct 16 02:48 PM H. T. Love wrote:

> Now, that was a good move. Taking *some* profits or protecting with
> puts should leave you in good shape. If the strips hold there current
> pattern, we could see all the contango gone Fed-May and maybe even
> backwardation. That would then start to give a really good profit
> to you.
>
> Congrats!
>
> HardToLove

Oct 16 02:49 PM