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Heat Wave
The next chart shows the trend in the price of natural gas since the March 2009 lows.
After reaching a high of US$6.47/mmbtu in early January 2010, the price retreated to the March 2009 US$4.00/mmbtu level around which it has since oscillated.
While we remain bullish on the long-term future prospects for natural gas prices, we are always trying to find reasons to suggest the near-term outlook is equally bullish. This is difficult given the shale gas conundrum.
However, there are a number of reasons to take a positive stance on natural gas. Longer term, the conversion of coal-fired generating plants to natural gas is obviously bullish. Also, President Obama has encouraged the development of natural gas to lessen the U.S. dependence on foreign oil. The U.S. also approved the export of liquified natural gas to markets where prices are much higher, which could, in turn, drive up domestic prices. With gas prices moribund and oil prices rising, many industry participants have switched their drilling focus from gas to oil, such that the lesser emphasis could shrink the gas glut and raise prices .
We may be wrong, again, in predicting that natural gas prices are going to raise themselves from their doldrums. But, we think that this, so far, hot summer could surprise investors with some startingly high levels of natural gas use and concomitant lower inventory levels.
Most of the “gassy” stocks are under-performing, and have been for quite a while. Next thing you know, the stock prices are up 20% and the rally is on!
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