Natural gas a value and sentiment play

Here is a chart of US natural gas (source) going back 25 years. Adjusted for inflation, gas has never been cheaper. Compared to oil and coal on an energy equivalent basis, gas is far cheaper than it has ever been. 

natural-gas-monthly-price

historic-oilgas-and-gascoal-prices-provide-opportunity-for-fuel-switching

Here are three big US gas producers, Chesapeake, Encana and Southwestern, all of whom have been beaten down to 2008 levels (chart from yahoo): 

big-us-gas-producers

Finally, here is a composite sentiment measure (sentimenttrader.com), which suggests that investor sentiment, which is a contrary indicator at extremes, has never been more negative on the sector:

public-opinion-natural-gas-april-2012


An NG long could even be paired directly against a crude short, since such a large difference between NG and crude or coal simply cannot last in a market economy. Even if gas stays low as economic activity slows, crude will likely come down.

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1 Response

  1. JJ says:

    Two things:

    I went short about two weeks ago when i discovered that producers have stopped hedging. They know something.

    Another element that i’ve not heard discussed is that with with storage capacity utilization at a record level these producers sitting on mountains of stored NG (and massive recurring storage expenses) have more incentive than usual in seeing prices rise drastically. Considering that rig counts are dropping substantially it seems they are doing their part to get prices up.
    Fracking is producing more than rigs now but this method has the political pressure as Vermont banning it this week shows.

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