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Bob Carey
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  Natural Gas Is A Perplexing Market
Posted Under: Sectors


View from the Observation Deck

  1. In our previous blog on natural gas (3/6/12), we commented that too much supply plus a mild winter helped drive down the price of this commodity.
  2. We concluded the post by suggesting that its current price of $2.35 per million BTUs could be a good entry point into this market for a patient investor.
  3. As it turned out, the price of natural gas declined from $2.35 per million BTUs to a low of $1.91 on 4/19/12. The drop in price was countered by a big reduction in rig count.
  4. One way to stop the price from falling is to cut production. The number of U.S. natural gas active rigs plunged from 670 in early March to a 13-year low of 541 on 6/22/12.
  5. It appears to have worked. The price of natural gas is currently trading near $2.68 per million BTUs, still well below its 3- and 5-year averages of $3.91 and $5.24 per million BTUs.
  6. Production has slowed somewhat but analysts quoted by Reuters do not see any significant slowdown in output until later this year.
  7. The patience part of this trade really hinges on the demand for natural gas, in our opinion. We believe investors are waiting for a catalyst.
Posted on Tuesday, June 26, 2012 @ 2:38 PM • Post Link Share: 
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These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.
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