Sky-High Talk on Low Natural Gas Prices

After all this week’s conference activity we thought that a plane ride would give us a chance to disconnect for a while, but even at 30,000 feet we’re still thinking about the markets. This time, we weren’t the only ones, as we were seated on our flight next to someone with 35 years of experience in the oil and natural gas industry (who wishes to remain anonymous). We’ve talked about this market a few times recently, wondering what was in store, and our in-flight companion was eager to share with us his thoughts on natural gas prices.

While he doesn’t think prices can go much lower than they have recently, he also doesn’t see a sustained increase in price in the foreseeable future. (looks like it’s Mr. Anonymous versus Jeff Gundlach of Doubleline) As our plane companion sees it, oil and gas companies are viewing Natural Gas as sort of a home run play way down the line. In that light, they aren’t concerned with oversupplying the market right now. In his belief, they are really after the rights to drill for natural gas in areas where it’s plentiful into the very far future, and in many cases to keep the drilling rights to the land – they are required to set up wells. So, it isn’t a matter of profit, it’s about keeping a long-dated call option which gives them control over as much production capacity as possible when and if natural gas becomes more widely used and prices eventually do go up.

What’s more – he said many of the wells that are being built in order to stake a claim to natural gas reserves are at times left half-developed. (I supposed that covers the requirements to be active on the land they’re leasing?) These wells aren’t producing now because of low prices, but it would only take a price increase of a dollar or two from current levels, in his opinion, to change that calculation. So, production can quickly increase on the heels even small price increases, meaning we may be looking at range-bound natural gas for the foreseeable future.

It may all be pie in the sky (literally – we were on a plane), but it is an interesting take nonetheless, which gives a little insight into why and how supply and demand can affect market prices.

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  1. […] Attain Capital Management: Attain’s blog comments on the overall market but it often features news updates for NG. Great article: Sky-High Talk on Low Natural Gas Prices. […]

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The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

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