Natural Gas Price: Trend Change or Winter Peak?

Includes: DVN, ECA, EOG, EPL
by: Kurt Wulff

From a price point of view, natural gas is acting well in 2007.

The bad news of warm weather in January did not drive price down and the good news of cold weather in February may be setting the stage for price to move up. Near-record heating demand this month promises further sharp inventory reductions, bringing gas in storage well within the five-year range (see Working Gas chart, below).

The long-term price for delivery over the next six years is within 4% of exceeding the 40-week average (see chart Natural Gas Six-Year Futures, below). Once price crosses the 40-week average, trends may persist, as they did in an upward direction from 2003 to early 2006, and in a downward direction for the rest of 2006. An improving picture for the commodity is also an improving picture for stocks concentrated on natural gas, including large cap producer buy recommendations with a double weight in the McDep Energy Portfolio: Devon Energy (NYSE:DVN), Encana (NYSE:ECA) and EOG Resources (NYSE:EOG).

Also, concentrated 54% on natural gas by value, buy-recommended Energy Partners (NYSE:EPL) gained 9% in stock price on the week as investors await results from the company’s strategic alternatives process. As for the mystery raised by the title, we think trend change is the more likely outcome.

gas and oil futures

working gas

natural gas strip