Natural Gas Momentum Likely to Continue - Blackmont 20 comments
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The rise in natural gas prices this month is a welcome sign for investors, especially after months of enduring a slow and painful drop in the value of North America's most exclusive commodity.
After falling as low as $2.50 per mmbtu on September 3, natural gas futures have risen to $3.65, an increase of 46%, that has given most natural gas stocks a huge lift over the past few weeks.
Blackmont analyst Gord Currie told clients on Wednesday that the change in momentum is likely to continue moving forward, even though underlying fundamentals remain weak.
He wrote in a research note:
Short-term gas prices are largely driven by the amount of gas in storage, and the inventory numbers still point to lower prices until the end of October, which marks the end of 'injection' season.
Investors, however, are clearly looking 'across the valley' to the winter months when cold weather will stimulate demand for gas and when economic growth is expected to return to North America.
Although natural gas stocks have rallied nicely, the analyst said there are buying opportunities still available. In the intermediate space, he likes NuVista Energy (NUVSF.PK) and Celtic Exploration best, while junior producers such as Anderson Energy, Angle Energy and Sure Energy also offer good value.
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"Investors, however, are clearly looking 'across the valley' to the winter months when cold weather will stimulate demand for gas and when economic growth is expected to return to North America."
Did you know it gets cold in November, not October? October is probably the worst demand month of the year, no cooling and no heating. So, why would an October deliverable contract trade on November and beyond demand dynamics? Please enlighten us.
thanks,
Ari
On Sep 16 02:52 PM Aricool wrote:
> This seems like a rediculous quote:
> "Investors, however, are clearly looking 'across the valley' to the
> winter months when cold weather will stimulate demand for gas and
> when economic growth is expected to return to North America."
>
> Did you know it gets cold in November, not October? October is probably
> the worst demand month of the year, no cooling and no heating. So,
> why would an October deliverable contract trade on November and beyond
> demand dynamics? Please enlighten us.
>
> thanks,
> Ari
No, price will. They are shutting in when prices crash. The only demand you can get are combined cycles and when gas goes up, their spark spreads go negative, putting them OTM. The cc's can burn on order of maybe 1.5-4 Bcf/d depending on system constraints and load in the Eastern Interconnect.
Remember, most of the producers hedged forward, so they don't really care, and those that didn't still need to maintain cash flow so they remain producing at a loss. The same situation is happening in coal, which is why gas has to go so low to bring on the combined-cycles against sub-$50 NYMEX spec coals.
TIA!
Ari
Regardless of October fundamentals, check some of those charts you skimmed that I have laying around. October is the most consistent start of a rise in prices, although I currently expect the rise to be muted this year. September sometimes start the run-up, but not as consistently as October.
But folks work on short-term memory of the past without much research (I guess they just listen to professional analysts mostly?) and so it doesn't surprise me that we see a blip up for now. When some more reality smacks us around, if I'm right in my thinking, we'll see this September blip dissipate and the EIA calling for October $2.25 average prices may prove accurate.
HardToLove
On Sep 16 02:52 PM Aricool wrote:
> This seems like a rediculous quote:
> "Investors, however, are clearly looking 'across the valley' to the
> winter months when cold weather will stimulate demand for gas and
> when economic growth is expected to return to North America."
>
> Did you know it gets cold in November, not October? October is probably
> the worst demand month of the year, no cooling and no heating. So,
> why would an October deliverable contract trade on November and beyond
> demand dynamics? Please enlighten us.
>
> thanks,
> Ari
from Back To The Future for 2010!
You miss the point about full storage. If there is no place to put the NG then production must be equal demand (use) or less. The CEO of CHK has acknowledged this fact when he stated they would not further lower production until storage capacity was reached because all producers will then be forced to cut back production.
I have a question about this situation, though, in re hedging. That is, if an E & P has a hedge on production they'll deliver to the consumer at the (much higher) hedge price, so I assume this production does not go into storage, and if so, maybe just temporarily until delivery; however, given that almost all E & Ps are hedged for '09, then why is storage filling up and at issue? This makes me think that the E & Ps are producing well above their hedged volumes (to generate more cash flow) and dumping it into storage (like a savings bank).
If the above is the correct model, then is not the correct analysis to determine the cash flow generated by the majors from non-hedged production and try to estimate how discretionary it is for them to cut down volumes into spot market demand, and at what price is the marginal cash flow just not worth it?
Any informed thoughts/comments?
thanks,
Ari
On Sep 18 10:53 AM ripskii wrote:
> "No, price will. They are shutting in when prices crash"
>
> You miss the point about full storage. If there is no place to put
> the NG then production must be equal demand (use) or less. The CEO
> of CHK has acknowledged this fact when he stated they would not further
> lower production until storage capacity was reached because all producers
> will then be forced to cut back production.
<snip>
> skimmed that I have laying around. October is the most consistent
> start of a rise in prices, although I currently expect the rise to
> be muted this year. September sometimes start the run-up, but not
> as consistently as October.
not when storage is getting too full. See 2001, 2003 and 2004. In '04, the front month contango was $3 below the next month and did not correct until January.
I've read a 101 on storage, and saw that our assumption about the design capacity was correct. Thanks for your confirmation on that, though. I came across more advanced info on the subject and it is dire. If you want to talk about it more offline, email me here:
groups(at)sonic(dot)net
>
> But folks work on short-term memory of the past without much research
> (I guess they just listen to professional analysts mostly?) and so
> it doesn't surprise me that we see a blip up for now.
I completely agree with you on this one. Cramer, Fast Money, and talking head CME pit boys on CNBC all echo the classic crap of Oct. run up, oil/gas ratio, NG got too cheap.
Hey, did you see that moron on Bloomberg today?
Laurence Eagles (www.linkedin.com/pub/l...), global head of commodities research at JP Morgan Chase - gave "expert opinion" on Bloomberg "Taking Stock" that
Nat Gas shot up because of shut-ins and switching away from coal gave positive supply demand dynamics and now is the time when
cold weather starts running up NG prices. He said "the worst is behind us on NG"! I think he is either completely an idiot, or
gaming the market b/c he also said that the run up in commodities like oil and copper was real economic activity and blew off
"rumaors" of China stockpiling. He said "China is now just having technical difficulties getting import licenses to keep buying as much."
I think the bulls are going to try to run NG up to 4 on the front month and then get their asses kicked. I started a small short position on the November contract at 4.5 (when Oct. was 3.65). I plan to double my position when/if Oct gets to 3.9-4. I pray they push it up there early next week.
>When some more
> reality smacks us around, if I'm right in my thinking, we'll see
> this September blip dissipate and the EIA calling for October $2.25
> average prices may prove accurate.
After coming across some key info, I now 100% agree with this. The (dumb) bulls are going to get killed on this one.
Cheers,
Ariel
>
> HardToLove
>
> On Sep 16 02:52 PM Aricool wrote:
><snip>
> you guys need a lesson in the dif between smart and
> smart ass, you just sound desperate
To whom do you refer Sir? And further, regardless of the level of perceived idiocy by you, does that phrase further the education of any of us? Or contribute to the (possible) examination of issues that might affect the investing success of anyone that took the time to post here?
I suggest a little work on the "Wisdom" part of your pseudonym.
In good cheer,
HardToLove
"I think the bulls are going to try to run NG up to 4 on the front month and then get their asses kicked. I started a small short position on the November contract at 4.5 (when Oct. was 3.65). I plan to double my position when/if Oct gets to 3.9-4. I pray they push it up there early next week."
No need to pray, mate, just tell us where your stop will be.
On Sep 20 06:57 AM HedgeFundBaby wrote:
> I love this comment:
>
> "I think the bulls are going to try to run NG up to 4 on the front
> month and then get their asses kicked. I started a small short position
> on the November contract at 4.5 (when Oct. was 3.65). I plan to double
> my position when/if Oct gets to 3.9-4. I pray they push it up there
> early next week."
>
> No need to pray, mate, just tell us where your stop will be.
On Sep 20 01:11 PM Aricool wrote:
> 5.5.... go for it!
On Sep 21 02:56 PM HedgeFundBaby wrote:
> on which month?
On Sep 22 03:24 AM Aricool wrote:
> If you can't even read stated facts that are under your nose then
> you should downgrade your psuedonym to HedgeFundInfant....