Four Natural Gas Opportunities at the Lowest Commodity Price in Seven Years

Income and Small Cap stocks, including buy recommendations San Juan Basin Royalty Trust (SJT), Dorchester Minerals, L.P. (DMLP), Hugoton Royalty Trust (HGT) and Cimarex Energy (XEC), offer some of the purest opportunities to buy natural gas at the lowest commodity price in seven years. The low may have been set on September 4 when October futures touched $2.409 a million btu and the national average cash price dipped below $2.00 to $1.97 as reported by Platt’s Gas Daily. Stock prices seemed to anticipate short duration for extreme natural gas price conditions with only SJT among 19 stocks in this weekly coverage still trading below its 200-day average, a widely watched trend indicator.

The main contributors to low fuel price are the convergence of the seasonal cycle and the economic cycle along with lag time between the drilling cycle and the production cycle. The low demand period in the fall when weather is pleasant is occurring at the same time that economic activity is at a recessionary low, which follows a few years of expansion. Surely, fall will turn to winter and the economy will grow again. While producers began sharp curtailment of drilling new wells a year ago, it took months for volume to slow and then to decline. Surely, it will take time for supply to grow again after producers resume drilling. The cyclical signs are clear. Though the price lows can always be lower, the upside is beckoning beyond the next few weeks into October.

Originally published on September 11, 2009.

Comments

[jarco:]

I disagree price and drilling activity are prime considerations. The drilling activity is purely a "keep one busy" action. If you're a explorer, you explore albeit reduced because you can't even sell what you have let alone what you find. Unlike oil, NG is found and more quickly brought to market. It's like picking up a handful of sand. You see it and the next time you look you see less. Use it or loose some of it.

Oct 05 11:35 AM

[Mad Hedge F...:]

vfe Happy as I am to open beer bottles with my teeth and do my own tattoos, I have recently become a wimp when it comes to trading natural gas futures. I managed to warn my readers that a collapse of Biblical proportions was coming on June 2, when I recommended a sale at $4.40 (click here for the report at www.madhedgefundtrader...). Yes, you may fan me with ostrich feathers like a Middle Eastern potentate for that call. No, I did not predict a $1.90 bottom by throwing a dart at a dartboard. I simply called a half dozen buddies from my drilling days in the Texas Barnet shale and came up with a worst case cost of production of $2/MBTU. As it turned out we got a $2.40 bottom, and then a to $5/MBTU in a nanosecond, obviously the mother of all short covering squeezes. The industry is still on the horns of a massive dilemma. More than 100 years of supplies of CH4 have been discovered recently, but all of the main production companies may go under before we get much of it out of the ground if prices don’t stabilize. Virtually all natural gas storage facilities in the country are either full or locked up by hedge funds, and it is impossible to export the stuff. Many shareholders have recently found religion, praying for a cold winter to balance out supply and demand. Long term, my bet is that the Pickens Plan (click here for my chat with the homespun Boone at www.madhedgefundtrader... ) and pushes prices back up. If you still want to play where traders gulp down a quart of hot steaming volatility before breakfast every morning, e-mail me at madhedgefundtrader.com and I’ll tell you how to get set up. Just keep in mind though that you are moving into one of the toughest neighborhoods in the financial markets, where the “widow maker” lives.

Oct 05 02:11 PM

[ArtfulDodger:]

Mr. Wulff, if you keep touting these type of stocks, one day the 548 of us who follow your articles will cheer you and call you a prophet!

Oct 06 03:30 AM

[Paulus:]

At about $20.00 BOE (pps&debt) for proven reserves, I think there are other better stocks than XEC

Oct 06 08:07 PM