Gas at 2 bucks?

texrex2002 · May 17, 2009

I thought I remembered someone recently opining that gas will head back down towards 2 after this short spike up.

I personally think fundamentals are pointing downwards (weather is mild, unconventional supply is huge, LNG tankers wandering around looking for a place to unload, storage nearly full, etc), but was wondering about storage. If it's full of 4-8 dollar gas, why would they be getting it out to sell below whatever their gas "weighted average cost" is?

Would "strage full of really expensive gas" not actually be bullish? since when it comes out it'll be at high prices?

My understanding is that the cheap gas can't really get from producing areas to the hubs in sufficient volume to pull prices down very much, especially if local storage is already near full of expensive gas...

Can someone set me straight?

Thx

PAPA ROACH · May 17, 2009

Quote from texrex2002:

I thought I remembered someone recently opining that gas will head back down towards 2 after this short spike up.

I personally think fundamentals are pointing downwards (weather is mild, unconventional supply is huge, LNG tankers wandering around looking for a place to unload, storage nearly full, etc), but was wondering about storage. If it's full of 4-8 dollar gas, why would they be getting it out to sell below whatever their gas "weighted average cost" is?

Would "strage full of really expensive gas" not actually be bullish? since when it comes out it'll be at high prices?

My understanding is that the cheap gas can't really get from producing areas to the hubs in sufficient volume to pull prices down very much, especially if local storage is already near full of expensive gas...

Can someone set me straight?

Thx

Storage is much more complex than what it may appear on the surface. First off, utility companies do not base injection and withdrawal decisions on price, it is a pass through to the rate payers. They have X amount of space and rateably fill storage until they hit their desired marks.

The second class of storage players (speculative/operational asset players) use the spread to make their decisions and more times than not hedge their forward sales. For example, they are injecting $4 gas now and are selling NYMEX contracts in Jan or Feb at $5.90 against it. So when winter comes and gas is trading at $3, they are hedged and will withdrawal as long as it is the most economical time to do so. Utilities will withdrawal on a pre determined schedule as well for the most part.

So in short, price is not the factor you would assume. It gets complex enough to write a book on how to operate storage, there are many ways to optimize your space for profits.

For the record, I am still UBER bearish on a macro perspective for any and all gas for the balance of this calendar year.

CET · May 17, 2009

Quote from PAPA ROACH:

So in short, price is not the factor you would assume. It gets complex enough to write a book on how to operate storage, there are many ways to optimize your space for profits.

Papa,

Do you know of any web sites or books that get into more detail about storage economics? I would guess that many if not all users/owners of storage have their own particular economics, but I am interested in any economics info on storage and transportation in general if you can recommend any. TIA.

PAPA ROACH · May 17, 2009

Quote from CET:

Papa,

Do you know of any web sites or books that get into more detail about storage economics? I would guess that many if not all users/owners of storage have their own particular economics, but I am interested in any economics info on storage and transportation in general if you can recommend any. TIA.

If there is something out there, I am unaware of it.

GCSICLRBC · May 17, 2009

From Bloomberg.com:

Natural Gas Set to Give Back Most of Rally: Technical Analysis
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By Reg Curren

May 18 (Bloomberg) -- Natural gas futures are poised to give back of their recent gains as a head-and-shoulders pattern that formed last week signaled a reversal, according to a technical analysis by John Kilduff, senior vice president of energy at MF Global Inc.

The pattern was created during trading May 12 through May 15, with a surge above $4.50 per million British thermal units on May 13 forming the head, Kilduff said in a telephone interview. Gas reached $4.575 before beginning a decline.

Natural gas futures had risen from $3.155 per million Btu on April 27, the lowest since Sept. 5, 2002, amid speculation that supplies will decline as drilling slows. Prices gained 22 percent in the week ended May 8, the biggest increase in more than two years.

âWeâre going to give back the majority of this move, so Iâd look for it to give back $1,â he said. âItâs going to be pretty quick because thereâs not been a lot of conviction in this buying. This was a rally built on sand.â

A similar formation in early January, with an intraday high of $6.24 on Jan. 6, set off a 31 percent decline to $4.28 on Feb. 2, Kilduff said. Gas rallied for a short period from the Feb. 2 low before tumbling more into late April.

A break of the 10-day moving average on May 15 indicates âan extended move lowerâ to between $3.50 and $3.75, Kilduff said.

Natural gas for June delivery fell 19.4 cents, or 4.5 percent, to settle at $4.098 per million Btu on May 15 on the New York Mercantile Exchange.

Technical traders monitor patterns on daily charts for clues to price direction, and may sell or buy based on those signals.

To contact the reporter on this story: Reg Curren in Calgary at rcurren@bloomberg.net.

Last Updated: May 17, 2009 19:00 EDT

TraderZones · May 17, 2009

Head and Shoulder patterns have nothing to do with where Natural Gas is going to head. I wish these TA crackpots would stay out of the news.

It is like asking a psychic to help solve a murder. 300 psychics on cases, 299 are useless, and the 1 lucky one is all people remember and hang onto.

GCSICLRBC · May 17, 2009

Quote from TraderZones:

Head and Shoulder patterns have nothing to do with where Natural Gas is going to head. I wish these TA crackpots would stay out of the news.

It is like asking a psychic to help solve a murder. 300 psychics on cases, 299 are useless, and the 1 lucky one is all people remember and hang onto.

You're way off base, friend.

I don't see you in the news. (EXACTLY)

Do you honestly believe that NOBODY looks @ the charts?

You're an imbecile.

Trading = Support/Resistance trading; pattern recognition; battle between buyers/sellers for dominance.

Some traders trade the news; most the chart.

FOr example, I trade 'upstairs' & would likely never know as much as PAPA ROACH about natty's fundamentals. WHy? Well, it's not my inclination to study it like that. I trade the charts.

The big boys who do mucho homework follow hte fundamentals then turn that info into trades which show up on my charts. Right now the trade is short & shall likely lean further so, esp. if S&P gives back some recent gains (I've bet it will).

SO go eat your boyfriend's @SS, you NEgative Nelly.

(& keep up the good work, PAPA DOC!)

LOL =)

P.S., TRADERZONES, noticed you average SEVEN (7) posts per day!

WHO'S the crackpot?

ET's a cool place to shoot the breeze a little, but maybe you should give it a rest.

BostonTrader339 · May 17, 2009

Quote from TraderZones:

Head and Shoulder patterns have nothing to do with where Natural Gas is going to head. I wish these TA crackpots would stay out of the news.

It is like asking a psychic to help solve a murder. 300 psychics on cases, 299 are useless, and the 1 lucky one is all people remember and hang onto.

so which one are you?
number 2?
rb.

texrex2002 · May 18, 2009

Found this this morning, not sure if you guys can see it. Yield Curve: Prices Respond to Storage Changes.

Papa Roach: my company has some storage in Ohio, and we do exactly as you said: Well in advance of injection season we'll buy April - October and simultaneously sell November - March to lock in a spread (but we do it with swaps, not futures). As these swaps settle financially we have exactly the right amount on $ to inject (for buying spot gas to flow into storage) and on the withdrawal side we immediately sell the gas to meet our finacial swap obligations.

Not much different than renting a supertanker to park oil in a contango market.

We're somewhat restrained by "ratchets" that dictate how much gas we need to have in storage by certain times, so it's not fully de-regulated, but it's still a nice little cash machine.

TraderZones · May 18, 2009

Quote from GCSICLRBC:

You're way off base, friend.

I don't see you in the news. (EXACTLY)
.

A) And where are you, in the news? Must have missed that

B) And what does being in the news have to do with anything? Cramer is on every business day and shows little edge...

C) Sorry, your latest post only painted you as a newbie, it did not strengthen your case. You think the gasoline traders at the hedge funds, refineries, oil companies and IBs are sitting there taking positions based on Head&Shoulders??? I work in the industry. You apparently work as a cub news reporter...