Your Rally Is Coming Apart At The Seams

The land outside my 9th floor office is a tepid and mild temperature and disposition. There is no snow left on the ground, although there was almost an inch of the cold powder just this weekend. That’s been the very essence of this winter; sporadic and fleeting.

And because of it, natural gas remains a dead investment.

Looking back to early September, I’ll just say that I reminded you this would happen. I actually titled the piece “The Winter That Killed Natural Gas.” And I would take a minute to cheer the source of my weather forecast – none other than the illustrious Old Farmer’s Almanac.

This is one of the oldest publications in America, and I cannot recall the last year that they blew a prediction. If you don’t read the book, you are missing out, sorely.

However, natural gas will not maintain these low price levels forever. I’d guess it is going to be a great buy soon enough. This year’s weather is a phenomenon. But at these prices, a bad year one, perhaps even two, years from now could be enough to squeeze supplies and send prices ramping. However, it is tricky with natural gas because of the storage costs adding a significant time constrain.

I’ll be looking into it and trying to figure out of buying natural gas soon is a good investment. My guess is that buying in March or April is best; although the summer is also traditionally weak, especially if crude oil and other alternative fuels take a dive. But I have a feeling that natural gas may get a demand pump soon, if only because people will be looking to add natural gas lines, as permitting, to cut their energy bills.

Moving on to today; if you haven’t noticed, you are in very deep trouble, if you are voting on a rally continuing. Crude oil has been in a steady bleed since January. I know plenty of you rushed into this rally when crude oil ran from the high $70’s back into the $90’s and, later, $100’s. You took it as an indication that the economy was improving and demand was ramping up.

I’m afraid you were mistaken. Actually, demand has not ramped up significantly, and much of what was there was the product of temporary policy (like the latest expired government tax credit for heavy capital expenditures). The cause of the run in oil was predominantly built on three factors that I have thus far identified: (1) Middle East instability (2) rerouting of the Cushing, OK supply glut and (3) the Dodd-Frank Bills’ provisions for limiting ownership of commodities through derivative products.

Each of these three causes appears to have had some impact on the run in crude oil. Yet, as we have seen consistently through European manufacturing numbers, some of the local manufacturing numbers (although not the latest, necessarily), and most recently with the DOW earnings report, demand for crude oil remains soft at best.

This rally is built on “cheap” tech and trash rockets. It will end as spectacularly as it began.

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