Thursday, March 15, 2012

The Natural Gas Limbo: How Low Can it Go?

"Remember When Natural Gas Was 1.15 in the Early 90′s…"

Why yes, yes I do.
I had a friend who became obsessed with how cheap Natty had become and started accumulating exploration targets. He sat and sat on them, sometimes selling off a bit to cover expenses.
He did alright but because of the long holding period his annualized returns weren't eye-popping.
Timing isn't everything but it can make a difference when the number crunchers are figuring your 2/20.

We've been babbling about sub- $2.00 gas for a few months now, with a May-June time frame.
The U.S. has already seen open-choke production, the next EIA report will show a downturn.
The problem is storage which will be at capacity within 60 days or so. When that happens we may see gas in the cash market changing hands for $1.80 or a bit lower. Meanwhile the exploration companies are faced with the awful choice of completing wells that they've thrown cash money into and immediately shutting them in or dumping the gas onto the summer market for whatever it will fetch. Stay tuned.
Last I saw the front-month futures were at $2.245.

Here's Dragonfly Capital with an even lower target:

Remember When Natural Gas Was 1.15 in the Early 90′s…
Back on January 26th I speculated in this space about whether the bottom was in for Natural Gas or not (link below). The answer since the has been a resounding NO! as is sits back at the previous low near 2.24 trying to make a Double Bottom as shown on the daily chart below. But other than the prospect for a Double Bottom the daily chart points to even lower prices in the future. The consolidation is also a bear flag which would give a target of 1.70 if it were to breakdown lower. The Relative Strength Index (RSI) remains bearish and the Moving Average Convergence Divergence is

negative, although improving. The weekly chart does not give any reason to rush out to buy it either....MORE