Natural Gas: The Washington Generals of the Commodities Market

Nat Gas

Yesterday the price of natural gas dipped under $3 per thousand cubic feet, the lowest level for the commodity in 7 years.

With spot crude roughly 100% higher than it’s ’09 low and in an environment where virtually every agricultural, industrial and precious commodity is showing gains for the year, nat gas stands alone as a major loser.

Traders have been attempting to pick bottoms in natural gas all year, salivating over the $13 price tag the commodity fetched just a short while ago.  Every attempt to bottom fish has been a disappointment. 

In fact, betting long on nat gas has been like betting on the Washington Generals, the eternal rival of the Harlem Globetrotters who literally suit up every day just to lose.

Why has this been the case for the clean-burning fuel?

Chalk it up to good old supply and demand.

From the New York Times:
Gas demand is so weak and supply so abundant that some experts think the country could run out of storage capacity before the winter heating season begins, requiring gas companies to reduce flow from their wells or even shut down production.

You know you’re in trouble when there is so much supply of your product that the entire country is running out of places to store it!

Just how severe is the storage problem?

The weekly Energy Department natural gas stockpile report showed that underground storage in the lower 48 states rose by 52 billion cubic feet, to about 3.2 trillion cubic feet, for the week that ended last Friday. That is a storage level 21 percent above the level a year earlier and 19 percent above the average for the last five years at this time of year.

Yeah, so we can say that the silver lining here is that congress may look at the cheapness of these prices and do more legislatively to push power plants and truck engine makers to switch to gas versus coal and diesel.

Or we can just avoid this commodity like the plague until the demand picture improves.  May be awhile…I’ll be busy elsewhere even if it does bounce.

Sources:

Natural Gas Prices Plummet (NYT)

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  1. Natural gas quandary Abnormal Returns commented on Aug 24

    […] played out over the past year.   Natural gas prices have been in pronounced downtrend with prices hitting new lows.  However, the ratio of oil to natural gas has hit record levels, i.e. natural gas is cheap […]

  2. Natural gas quandary Abnormal Returns commented on Aug 24

    […] played out over the past year.   Natural gas prices have been in pronounced downtrend with prices hitting new lows.  However, the ratio of oil to natural gas has hit record levels, i.e. natural gas is cheap […]

  3. Natural gas quandary Abnormal Returns commented on Aug 24

    […] played out over the past year.   Natural gas prices have been in pronounced downtrend with prices hitting new lows.  However, the ratio of oil to natural gas has hit record levels, i.e. natural gas is cheap […]