In the very broadest sense, natural gas and crude oil are interchangeable. They get drilled up, processed and used as energy. As trading vehicles that's just where the similarities end. While crude has spend decades dominating headlines and price consciousness, natural gas has been widely ignored; the perennial "next big thing" that never caught steam.
Suddenly the roles have reversed. Since April 25th natural gas has exploded more than 30% higher while crude has slipped more than 20%. Now that traders are looking to take profits in gas and buy WTI crude at last years' low in the mid-$70s Breakout welcomed Charles Nenner back to the show to give us his thoughts on where oil and gas are heading next.
When Nenner came on the program in late March he said crude could make a marginal new high but he was buying with a stop about $105 a barrel. That trade got stopped out almost immediately and crude has barely looked back, falling 25%. Nenner says there's more to come. His work, which incorporates cycles and momentum rather than chasing headlines, suggests crude isn't going to stop falling on a time basis until November, working its way as low as $68 a barrel.
Natural gas is much more exciting. Three months ago Nenner made a wildly contrarian call for nat gas to make a bottom in the "next month or two" around $1.70. One month later gas hit the high $1.80s before violently reversing to over $2.70, where it is today. A perfect call? No but "not too bad" as Nenner modestly puts it.
Further, he believes there's still time to get in on the nat gas trade. Nenner's indicators suggest it'll remain weak into late July prior to resuming its rally. For those not in the trading pits to buy futures, Nenner suggests Encana Corp. (ECA) as a proxy.
Bottom line: Ignore crude oil until November and buy Encana next month. Nenner may not get it right on the dot but if past is prelude, he'll be close enough to make you money.