A lot of bad news happened to Oil and Natural gas recently. the growth curve of shale natural gas also looks up and scary. UNG at historical low of $13.2.spot price for gas has dropped below $3 for a few days. here is some point UNG might be set for a bounce. The sharp down of oil+rig will up natural gas price in gigantic trend, switch from $RUSL,$UWTI, $GASL(rely on both oil and gas) to $UGAZ:
1. cold weather soon on northeast of US.
2. Oil used to be the primary profit point for most drilling, now also significantly below cost. rigs for both oil and gas have down significantly. as long as both oil is in depress and gas in tear, there is no reason to drill for gas. , and drilling equal to losing money at persistent low oil price (it will be due to EM in downturn).
3. gas storage still at middle of 5 years.
4. Total supply increase 0.91%; total demand increase to 7.4% last week.
5. energy investment heavily diverted to Russian oil asset (see here)
6. the US natural gas sell at 30% of the rest of world average price(EU and Asia at $10~$11, production cost at US at $4.85), but technology cost not much difference and Shale gas drill has the highest cost of all drilling. so its profitability primarily or solely tie to high oil price. the depressed oil price will eventually crash drilling and drive up US natural gas price. In simple term: oil/gas company has to earn money to survive, if oil stay low(we believe it will as US/Saudi pressing Russia and Iran, as EMs in big downturn), then US natural gas price has to rise. the sharp drop of rig count at the bottom chart is showing that trend soon to happen.
“The current downturn in oil-directed drilling should help natural gas prices,” Gilmer said. “That’s because much of the recent natural gas output has been as a byproduct associated with oil.”
if so, then good to buy UNG stock below $13.2 or UGAZ at that level (GASL has run too high too fast). Giving Putin’s ambition and lies, the fight between him and all of western countries will continue. plus the biggest EMs in downturn, we prefer safety and big trend of UGAZ and UNG. buy UGAZ below $3 and UNG below $14.
UNG has volatility at 51% at price of $14; UGAZ should have 150% at $3.
Dave Liu —Topcools editor
Natural gas has been below 5 year average for sometime: