BrotherMaynard

Beaten Down Natural Gas Likely to Stay Down, Making Producers a Short

horizontal drilling production rates only just went negative in february. those are the most productive nat gas rigs out there. so despite the aboslute fall in # of rigs, the quality and productivity of rigs that have been laid down for months is much lower. rigs cost money and make no mistake, e&p's won't waste a lease.

Beaten Down Natural Gas Likely to Stay Down, Making Producers a Short

From a note put out by Gil Yang at Citi, today:

"We believe that natural gas prices below the cost of marginal reinvestment is no longer sufficient to balance the market. Instead we believe that prices may need to fall below the marginal cash cost of existing production to incentivize shutting in production from existing wells. Thus, prices may need to fall to below marginal cash production costs which are probably in the $2-3.50/Mcf
range.

Our new commodity price forecasts reflect this view where we are setting 2Q and 3Q prices to levels anticipating several weeks of gas falling to ~$3.50/Mcf and below and possibly below $3 for a short time later this year."

Beaten Down Natural Gas Likely to Stay Down, Making Producers a Short

"Although I do understand (and agree) that dollar weakness should act to support all commodities in general"

oil and the dollar have nothing to do with supply and demand. yes a euro can buy more dollars, and therefore buy more oil, but what about the people already holding dollars? A weaker dollar, in and of itself, means that they can't buy as much oil as before. Last time i checked, the dollar was the most pervasive currency on the planet. if you look at any period during the 90's, this dollar/oil inverse "trade" did not exist. i have an idea why it started picking up during the past few years, but i'm not going to say it, as its far from conclusive.