While most analysts see prolonged pain for oil prices, one forecasts a rebound for another energy commodity -- natural gas.....MORE
Goldman Sachs analyst Samantha Dart sees prices doubling by next winter, which could make natural gas stocks a more attractive investment than oil producers.
Natural gas prices had fallen to multiyear lows even before the coronavirus hit the U.S. economy. Prices have sunk even further since as demand has dried up. Exports of liquefied natural gas, a major growth driver for the industry, have been falling, and other industrial uses will be hurt by the weak economy. Natural gas futures were trading up about 2%, to $1.64 per million British thermal units, on Tuesday, after falling to their lowest level since 1995 on Monday.
Electricity use, another major driver of natural gas demand, is also dwindling as offices throughout the country have emptied of workers.
“U.S. electricity demand is beginning to rapidly decline due to coronavirus-related containment measures,” Andy Weissman, CEO of EBW AnalyticsGroup, wrote in a daily update on the industry Tuesday. “Wholesale markets like [regional transmission organization] PJM have already observed meaningful reductions in peak and around-the-clock demand. Lower demand is translating into weaker power pricing, negatively impacting revenues for gas- and coal-fired resources and denting the independent generation sector’s credit outlook.”
But there is a silver lining for the industry in all this misery. Natural gas prices have been depressed in the past couple of years because of an enormous supply glut. Oil drillers in places like Texas produce gas while they drill for oil, and that “associated gas” has flooded the market, even causing prices to briefly fall below $0 last year at one pipeline.
Oil producers are now preparing to sharply decrease production in response to a decline in oil prices, which means a lot of that “associated gas” will disappear. By next year, prices could snap back, Goldman’s Dart says....
But you already knew that.
March 20
EIA Natural Gas Weekly Update: The interplay of Oil and Gas Prices
March 12
Wood Mackenzie: "Oil market rout could boost Asia’s gas demand" (plus an EMH vignette)
...We were able to take advantage of the market's slowly (see chart, it took a while) dawning realization of the first part of WoodMac's report, the supply-side reduction in associated gas:
March 9
With the Hydrocarbon Complex in Shambles Natural Gas Pops 6%
With the explanation referring back to a throwaway introduction to a March 8 post:
"Cabot Oil & Gas Stock Is Soaring While the S&P 500 Tanks. Here’s Why" (COG)
Ha!
...See also the intro to yesterday's "Assume Crash Positions: Goldman Cuts Brent Price Target To $30 'With Possible Dips Near $20'":
Ha!
That crash positions post is timestamped 2:08 PM PDT, Sunday March 8 i.e. before the futures started trading on Henry Hub natty and the fact the opportunity was still there very early Monday morning led the computers (and yours truly) to question whether it was just a mirage. See The Big Apple for many refs and cites of this old chestnut:
The efficient market hypothesis (EMH) assumes such efficiency that it has led to a popular economics joke. Two economists are walking down the street and one of them notices what appears to be a $20 bill (or a $100 bill—the monetary amounts vary) on the sidewalk. “It’s not a real $20 bill,” the other economist declares. “If it were a real $20 bill, someone would have picked it up off the sidewalk already.”In the case of the natural gas example the market wasn't rational and the futures went from $1.61 to $1.99 in three days. At $100 per penny on your $1450 initial margin for outrights.
As the retail guys say "And Mr. Bigg, if you annualize that...."
