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Kevin Grewal is the founder, editor and publisher of ETF Tutor as well as serves as the editor at www.SmartStops.net, where he focuses on mitigating risk and implementing exit strategies to preserve equity. Additionally, he is the editor at The ETF Institute, which is the only independent... More
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  • What the Future Holds for Natural Gas 0 comments
    Sep 28, 2009 1:56 PM | about stocks: CHK, AOIX, APC

    By Kevin Grewal, Editorial Director at SmartStops.net
     
    With the recent attractiveness of commodities, in particularly natural gas, the energy source has become a hot topic amongst investors and has therefore, witnessed a recent uptrend. As for the future of the odorless gas, there are various signs that indicate it may be bleak.
     
    First of all, the flock towards natural gas has forced the CFTC to talk about imposing position limits on the equities that track the commodity.  Although these limits have not been enforced, the talks alone have been harmful.  Secondly, it seems like the depleted oil fields and aquifers which are used to store natural gas in the U.S. have reached capacity.  In fact the Energy Department said that stockpiles may surpass the record of 3.545 trillion cubic feet by as much as 350 billion cubic feet this fall, which means that customers will have to pay a penalty for exceeding their limits. This could further force producers to dump excess fuel on the market.
     
    Thirdly, demand for natural gas is expected to take a hit as consumption by factories and manufacturers is expected to decline by nearly 10% for the year.  Lastly, from a supply perspective, it appears that there is plenty of natural gas out there.  The Energy Department states that supplies may hit maximum capacity before November, the month when utilities and power generators begin to withdraw the fuel for heating season.  Additionally, the current surplus in supply is estimated to be enough to meet a month's worth of consumption by households, factories and power plants during the cold winter months.
     
    Some equities that have benefited from the recent uptrend in natural gas are the following:
    Chesapeake Energy (NYSE:CHK), up 104% from a March low of $13.50 to close at $27.53 on Friday.
    Anadarko Petroleum (NYSE:APC), closing at $61.95 on Friday. A jump of 99% from a March low of $31.15.
    American Oil & Gas (AEZ), more than doubling from its March low of $0.50 to a Friday close of $1.61.

    When investing in these equities, one must keep in mind the inherent risks.  To mitigate these risks, an exit strategy is of importance.  According to the latest data from www.SmartStops.net, an upward trend in the previously mentioned equities could come to an end at the following price points: CHK at $25.42; APC at $57.63; AEZ at $1.43.  These price points change on a daily basis and updated data can be found at www.SmartStops.net
     

    Themes: Natural Gas, Energy Stocks: CHK, AOIX, APC
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