There are good reasons for both sides of the argument:
1) Institutional holders are shorting natural gas and commodities like oil, corn, soybeans, silver and base metals heading into the earnings season.
2) Oversupply is rampant. Storage levels have exceeded 2007 levels, though not by very much.
3) Weather is forecasted to be moderate this summer; little need for air conditioners.
4) Alcoa announces its earnings tomorrow after the bell.
5) The EIA reports inventories on Thursday.
6) Natural gas has once again become linked to oil contracts, which are selling off on a short-term basis as we approach the end of the summer driving season.
1) There are 23 million put options expiring on UNG with a strike price at or above $12 on the 17th of July. Calls come in to play between $14 and $15.
2) Because of the rapid descent of natural gas over the past week, a short squeeze is imminent just as it was in early May.
3) Front-month natural gas prices averaged $3.89 and $3.93 per MMBTu during the months of May and June.
4) Supply destruction
5) Manufacturing and industrial production numbers as well as personal income for the months of May and June showed slight improvement.
6) The inflationary measures taken by the Fed and the Treasury will ultimately put significant pressure on the US Dollar.
7) The current oil to natural gas ratio is unsustainable. This should return to the 10 to 12 range by December.
Natgas is selling under the mean cost of producing it, which is unsustainable. This will result in supply destruction, with the marginal companies closing down and drilling stopping, and the lower it goes the more devastating the supply destruction will be. This is how it's always happened, and this time is not different from all the rest of history, and this is true of all commoditities. Natgas will go up from here, the only question at issue is how long it will take to happen. To think it won't would mean that this time is different from all of history, and it never is.
The argument that hedging will keep companies pumping for long is not a sustainable situation. What ends up happening is the contango gets narrower as arbitrageurs sell natgas farther out and store it. Storage eventually runs out. When that happens, production really falls off a cliff, contango narrows, and the market begins testing the process of recovery. I know a lot of people think increased storage is bad, but in truth the market will really strongly recover when every bit of it is full.
We are putting more gas into storage than we have done historically.
But the curve shows there is still some way to go before we reach 3.6 T cu ft, which is where peak storage is on the curve (not the same as max storage). The government has secret plans to double storage, and increase the use of NG. There are many holes in the ground. Washington DC is filled with empty heads. Plenty of conceivable places to save NG. As for using NG, we should set up the largest oven in the world and bake Matzohs. Since Uncle Sam owns GM, they should tap into the excess gas to supply energy for GM plants. So there, I have given you a lot of reasons to be optimistic, and given NG lobbyists plenty of ammo for spin-doctoring.
I'll give you one. Nothing grows to the sky and the inverse, nothing falls forever. At less than $4, NG drillers are idling rigs. At some point shortages will occur and the price will rise. It won't happen tomorrow or next month. Look farther out, probably 6-12 months minimum. Simple as that.
Agreed. The near term, 2 to 3 months, nat gas will continue to fall. Sometime in Sept or Oct it will start a long slow rise. Depending on winter Jan may see 5.50. Key indicators to watch - steel production = majority of industrial demand, fertilizer production - 30% of NG used in industry used in fertilizer production, home ownership/sales numbers - need to shrink the number of homes sitting empty not burning NG. Biggest single indicator - weather forecast - more cold in winter and more heat in summer = increased demand.
Don't think we'll see large amounts of well shut-ins, too many experienced people fired from Baker-Hughes, Schlumberger and Halliburton to turn them back on in a timely manner.
Production will continue to fall off which will prompt a short term spike upwards sometime in 2nd or 3rd quarter of 2010 that will be brought down as drilling picks up. There are a lot more idle roughnecks than experienced well servicing crews.
The NG initiative currently in the Senate won't affect NG prices before 2011.
I don't claim to be God, that's just my serious 2 cents at guessing the next 18 months and why NG will eventually rise. You asked for serious discussion, there you go.
Here's another -
Our Exports are up! Look at the charts from March until now....the economy is not suffering as much as certain players suggest. Numbers can't lie, analysts can.
Read the information provided by the EFT. When the upcoming dates of the flip to the next months contracts happen, the valuation of the EFT changes. You have to read the information and you will see.
It is amazing how everybody is flustered, when if they just hang on, the price will be back up above $15 or $16 again.
Don't buy it.
But while you're at it, why not ask a woman to give you ONE reason to get married. There isn't one.
You'll actually have more money if you DON'T get married.
And buy natural gas instead.
See you in 6 months.