Natural Gas Stocks: The Bottom Is Close


"Thursday March 26 should have been a bloodbath for Nat gas prices and stocks. But it wasn't."

The natural gas inventory number was very bearish for last week, yet the NYMEX natural gas price itself in the U.S. was only down a penny - at Henry Hub in Louisiana it was actually up 4 cents. This is a bullish sign for natural gas stocks.

The EIA in the U.S. estimated there was a net injection of 3 bcf (billion cubic feet) of gas into storage last week, which compares to a 36 bcf withdrawal during the same week last year, and a five-year average of 63 bcf withdrawal for this week. The average analyst guess was an 11 bcf withdrawal.

Thursday March 26 should have been a bloodbath for Nat gas prices and stocks. But it wasnít.

The Western Canadian Rig Count (oil and gas) at March 24 was 132, vs. 230 the same time last year and vs. a five year average of 381. US gas rigs at March 20 were 857 vs. 1433 the same time last year. The five year average is 1268. Less rigs means less gas produced in the future - though we have yet to see any meaningful drop in production compared to the decimation of demand.

Also, the number of horizontal drilling (HD) rigs has only recently started to decline. Their use is down 10% so far this year compared to 41% down for all rigs of North America. HD rigs were actually UP by 4 last week. Thatís not bullish.

So what does this mean for retail investors?

There are still lots of macro-economic (recession) and industry specific (glut of low cost production, huge amounts of gas in storage) reasons that say fundamentally, gas prices and stocks should stay low - possibly for a long time. Even if gas goes to $5 again, many Nat gas producers have costs and debt levels high enough that they will produce precious little free cash flow.

I think oil prices are about to have a pullback - even if itís just to US$50/barrel.

Related Articles

Get Our Streetwise Reports Newsletter Free

A valid email address is required to subscribe