|
Category: Investment, Natural Gas
Natural Gas and Oil Risk Trade is Back Bigger than Ever
By Senior Energy Industry Executive Karl W. Miller
January 27, 2010
Energy Commentary from Karl Miller - Read Bio and More info
While the rhetoric is coming out of Washington is all over the map, the energy markets have been positioned for the risk trade to be put back on "in mass" for a variety of reasons.
Natural Gas has has burned off its surplus in storage and gone into a deficit, and weather forecast is for a blistering February/March, the worst in 15 years, according to leading forecasters. This provides cushion to being long the risk trade and buying natural gas now before the weather hits. Thus fundamentals will provide a floor or hedge to the trade, whereas six months ago, weather and gas surplus made it a much more risky trade. Now it looks like a winner up to $7/mmbtu, which based on yesterday's NYMEX close is a $1.50/mmbtu potential profit spread, which is massive.
The U.S. Dollar is starting to slide and positioned for further decline, given the fact that the global markets don't know where the U.S. Government is going with the Fed matters, deficit, etc. Even if the dollar holds in a narrow range, shorting at these levels is a fairly safe bet, as there is no chance Washington is going to convince the global markets in the next 90 days, that they have a plan.
While in theory, Banks and Hedge Funds are supposed to be de-levering, the simple fact is that they have nowhere to put their money, and have no choice but to put the commodity risk trade back on, if for nothing else as a holding pattern, until we get clarity on the U.S. Government matters, and allow them to collect the fundamental premiums in the natural gas market, and maintain a hedge on the U.S. Dollar.
Oil is a bit more difficult to justify, but the market does not have any choice there either. They must put the long oil trade back on, short the dollar, and what we are seeing is that rather than taking the absolute spread risk, they are buying substantial downside protection on the long oil position, which eats into their potential margins, but protects their capital, thus, they collar oil and take the full currency exposure by staying short the dollar.
There are other commodity risk trades, but by far, the most profitable and secure is the natural gas trade, as it is protected by U.S. domestic market fundamentals, and not exposed to macro-economic issues facing oil.
Mr. Miller called the flip in natural gas storage from surplus to deficit, and is looking for $7/mmbtu gas in short order, as the Artic Storm hits the U.S. East Coast later this week. We will start pulling hard volume from storage again next week, which will also be affected by blistering cold weather in producing regions as well, and Mr. Miller is looking for more supply curtailments, well freeze offs, and other logistical complications in the physical market, which leads to more support for a spot gas spike at the city gates and will work its way up to the NYMEX futures contract. For further reference see Mr. Millers analysis "Natural Gas and Oil: Thriving on Chaos" by going to link: http://www.naturalgasstocks.com/Karl_Miller/news/1211.asp
Mr. Millers Office
About the Author:
Mr. Miller is a globally recognized energy executive and institutional investor with a balance of both financial and energy sector expertise. Mr. Miller began his career on Wall Street during the 1980s and has an extensive background in banking, commodities trading and risk management.
Mr. Miller is acclaimed for multiple ground breaking market calls and investments, including the U.K switching from a net gas exporter to a net gas importer in 2000, called the California energy crisis in 2001, called the Ethanol and Bio diesel boom and bust in 2007, called the renewable energy boom and bust cycle underway in 2008, and most recently called the revival of natural gas in the United States in 2009.
Mr. Miller has a long history in the global energy business and has held a variety of executive management positions both within the United States, Europe and Asia. Mr. Miller has bid on over $25 billion in energy related assets during his career.
Mr. Miller has built, restructured and managed energy businesses for major public energy companies on several continents, including PG&E Corporation, Electricitie de France, El Paso Energy, Enron Corporation and JPMorgan Chase.
Mr. Miller holds an MBA in Finance from the Kenan-Flagler Business School at The University of North Carolina, Chapel Hill. Mr. Miller also holds a B.A. in Accounting from Catholic University located in Washington DC.
Disclaimer:
This column, Energy Commentary from Karl Miller, is the opinion of Karl Miller.
Content found in the articles is subject to the terms found in the InvestorIdeas.com disclaimer and does not represent a recommendation of investment advice. Investors should seek the advice of a qualified investment professional prior to making any investment decisions.
Published at the Investor Ideas Newswire
Investors: Sign up for free newsletter, stock and sector news alerts at Investorideas.com - Or publish your own stock picks and share your investing and trading ideas with other investors. Publish your investor ideas today!
Investorideas.com goal for 2010: 'One Million Members Stronger', empowering one million investors to invest in innovation and technology for a better world. Join us today!
Disclaimer: The following news is paid for and /or published as information only for our readers. Investorideas.com is a third party publisher of news and research .Our sites do not make recommendations, but offer information portals to research news, articles, stock lists and recent research. Nothing on our sites should be construed as an offer or solicitation to buy or sell products or securities. This site is currently compensated by featured companies, news submissions and online advertising.
|
