Posted by JC Parets on February 28th, 2012
It’s looking like fresh lows are in the cards for nat gas. Where is the bottom? When is the blood bath over?
We’re going on over 3 1/2 years of destruction and 80% losses. There is an old saying on Wall St. that, “Bottom Fishing can be Hazardous to your Wealth”. If you didn’t know this, let the current state of Natural Gas and the ’08 Financials be a lesson.
But in this case, we’re not talking about a company that can go bankrupt right? This is a commodity after all. So the reversion to the mean process should begin at some point. But where and when?
Take a look at the recent consolidation in the United States Natural Gas Fund ($UNG). The breakdown here below the triangle is typical. This type of brief pause usually resolves itself in the direction of the underlying trend. In this case it is clearly down. As scary as it may sound, the 4 point base in the triangle gives us a target somewhere in the 17.50 area. We may not get that low, and we can just as easily go even lower. But I have a feeling that a vicious tradable rally will develop from this breakdown.
Read the rest and see the charts here.
If you enjoy the content at iBankCoin, please follow us on Twitter
As a natural gas trader I have seen where gas can go. Zero isnt the limit. Gas prices in Alberta and the Rockies have traded negative before. The issue with natural gas is one a drastic over supply and unseasonably warm winter but just as importantly the fact that liquids and crude prices are very strong. In Alberta prices of liquids justify drilling. Nat gas is just a secondary product. Another issue is the juniors are really in a cash pinch now. They cant afford to shutin production so they will keep on producing. Its all going to end very very poorly. The equity and bond holders need to be flushed out. The majors will buy them all for pennies on the dollar and shut in production.
i agree with your last sentence there risky,but when they dwindle the major players down to 3-4 is when the golden age of nat gas being used for total tranny needs will then be ushered in enmass.and politics needs to be sidelined on the issue as well.
Mean revision would only apply assuming that the price signals the market was getting are not flawed. If the price discovery is flawed then you don’t even know where the true mean (theoretically where supply would exactly meet demand) is.
Can’t stop. Won’t stop.
Free energy!
Natty will go to zero, but your utility bills will remain the same.
Yea…natural gas is going to zero because a fucking triangle said so.
Those still operating rigs and wells without hedges or assets in decent shales are fucked.