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Category: Investment, Natural Gas
Update: Natural Gas NYMEX and Physical Market Prices to Turn Upwards
Natural Gas Producers Positioned to Gain
By Senior Energy Industry Executive Karl W. Miller
February 9, 2010
Energy Commentary from Karl Miller - Read Bio and More info
For public interest, Mr. Miller provides the following information. Mr. Miller is currently on medical leave.
The word on the street, and somewhat common knowledge is that the fund "UNG" has been selling NYMEX NG futures in size. Trader talk is that UNG is killing the NYMEX markets and the hedge funds are piling on looking to make what they can before they have to cover. So NYMEX selling is "not because there is over-supply of natural gas", that is simply not the case, its purely financial selling and hedge funds piling on.
The Hedge Funds know they have to cover soon as its a limited trade opportunity, as the good news is they are almost done and physical gas prices are spiking at the main delivery points in the North east and Southern California and will go higher due to extreme winter conditions and demand, leading to a major mismatch between financials who have no clue about physical market conditions. The physical market always dominates in the end and that is where we are heading.
To summarize, Mr. Miller believes what is happening in natural gas futures is a combination of ETF selling to meet redemption's and the Hedge Funds taking advantage and manipulating prices further downward. As mentioned, this does not reflect the physical market conditions and is a limited downward price move.
Analogies are MG liquidation of oil futures and swaps in the 1980's and Amaranth liquidation of natural gas futures and swaps a few years ago. Very short term dump of purely speculative financial positions, in fact it was the physical market spike that forced those liquidations and bankruptcies.
The extreme winter pattern is going to carry well into April and then the forecast is for a brutal hot summer, so all looks well in NG fundamentals.
Mr. Miller is seeing solid out of the money Call Option buying in the natural gas producer stocks, indicating that the market knows what Mr.
Miller has referred to above and expects a major upward move in producer stocks in February and a rebound in the futures and swaps market.
Everyone knows the U.S. is burning massive volumes of natural gas and heating oil across the country, have two major storm pounding California (40% natural gas dependent) and the North East again with more extreme weather to come. The physical natural gas market conditions are better than they were in 2007, which are very solid and improving.
The good news is the ETF's are almost done, and physical gas prices are spiking at the main delivery points in the North east and Southern California and will go higher this week, so major mismatch between financials who have no clue, and the real physical market.
Natural Gas producers like Chesapeake Energy, Devon Energy, Anadarko, and other producers made the right call going into 2010 basically under-hedged.
Solid earnings will show up huge in first and second quarter financial statements. CHK is the most undervalued of the major independents against earnings and reserve values.
Smart money has been accumulating producer stocks at current price levels with these facts in mind.
Investors can follow Senior Energy Industry Executive Karl W. Miller through the following RSS Feed: http://www.investorideas.com/RSS/feeds/Energy.xml
Mr. Miller is currently on Medical Leave.
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.
U.S. Utilities and Natural Gas producers are the best "Safe Haven" after U.S. Treasuries Plus You Collect a Dividend, Not Zero Percent Interest Rate" at the following link: http://www.naturalgasstocks.com/Karl_Miller/news/2046.asp
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