Commentary: With natural gas at seven-year lows, bargain hunters are back
Natural gas prices are languishing at seven-year lows, cast off the energy bandwagon as crude -- their boisterous big brother -- surges to new highs for the year.Oil and gas prices have a long history of moving in tandem. So why this glaring parting of the ways?
Many reasons. First of all, producers have stuffed the market with so much natural gas that there is nowhere left to store it. Underground storage facilities are full, pipelines are at peak pressure, and the combined cost of production and storage has topped what the market is willing to pay.
At the same time, it's been an unusually quiet hurricane season, giving futures traders few excuses to run up energy prices on the threat -- perceived or real -- to production platforms in the Gulf of Mexico. That's the supply side.
On the demand side, the economy remains weak, which hurts energy sales to industry. The weather is weak as well. North America is experiencing a relatively mild summer, which dampens demand for gas at power stations since air conditioners -- the single biggest drain on the power grid -- are not running at full blast.
With gas inventories now 10% above anything the market has ever seen and demand tepid at best, natural gas prices are getting crushed. The September futures contract on the New York Mercantile Exchange was plumbing new lows Friday, down another 2 cents at $2.93 per million British thermal units -- a level not touched since 2002. See Futures Movers.
To cope, some gas producers are shutting wells, opting to leave the gas in the ground. Why sell it at a loss? After all, it's not going anywhere.
With all this gloom in the underlying commodities market, what's an investor to do? Time to go bottom fishing. And that's exactly what's happening today in energy stocks.
Halfway through the session, the NYSE Arca Natural Gas Index (XNG 473.09, +12.63, +2.74%) is up 2.4%, keeping pace nicely with oil stocks and advancing at nearly twice the clip of the broader market....MORE
