10
Jan

Thursday Night Gas Report Thoughts – The Winds of Change

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Natural Gas Closed Up $0.16 to $8.259 on what was essentially an in-line gas storage report. 

Here's Where Storage Stands Now: 

gas-table-011008a.jpg

Zcomment: How I'm playing the move in gas right now. I have been long gas companies for quite some time and added highly gas leveraged (SWN) once it was clear gas was going to hold up technically (it almost failed $7 but not quite). At this stage I think the recent rally (up $1.30 or 18% in two weeks) is getting into the two far too fast category, especially with the way the very near term storage situation is setting - see the tough comps graph and thoughts below). While there are plenty of names I want to own Calls on for 4Q earnings and/or reserve reports, I plan to lighten my position in gassy stocks over the next week (hopefully into the last vestiges of gas price strength) in ones that have worked, again (SWN), and to ride out positions and extend positions in highly hedge players like (CHK). I will also be taking puts on the natural gas ETF UNG, most likely sometime next week.

Gas Graphs

gas-graph-011009a.jpg

 

gas-graph-011009b.jpg

 

When last the YoY storage comparison stood at these levels (mid May), the current front month contract was trading around $10. If the weather cools off again and allows for further deterioration of this chart expect gas to remain aloft for a little longer.

011008c.jpg

The preceding chart may be just about the most bullish one you can show for natural gas right now.  You have to go all the way back to 2005 to find a surplus to the five year average this small. Again, while I think gas is due a pull back, this recent draw down towards more "average" levels should prevent gas from taking a drastic turn lower over the next couple of months...probably now lower than mid 7s barring a heat wave.

gas-graph-011008d.jpg

Withdrawals were near the high end of the range for this week of the year which makes sense given the extremely cold temperatures experienced during the reporting period. 

Tough Comps On The Horizon. The recent deterioration of the gas storage overhang has been made possibly by a combination of chilly air and easy comparisons relative to last year. However, we are about to enter a period of more difficult comparisons to last year when just about now it was starting to get cold. This year temps are expected to moderate yielding smaller withdrawals and I would venture that we will start to see some softening in gas prices either late next week or early in the following week.

tough-comps-011008.jpg


2 Responses to “Thursday Night Gas Report Thoughts – The Winds of Change”

  1. 1
    jy Says:

    Does this work imply a $1-2/mcf price fall in gas over next 2 months or just wobbly trading in a $1/mcf range?

  2. 2
    zman Says:

    Jy – I think the immediate downside is a test of $8 which I think we break back down through and finally, maybe 6 weeks from now a test of $7 which I think we hold. Much depends on weather and so far forecasters have gotten the winter too warm week after week. But if we do get a warm end to January, $8 and $7.50 should fall. If it persists through February then $7 will be in jeopardy as well.

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