Why Natural Gas Has Bottomed

January 8, 2016 12:42pm NYSE:UNG

natural gasEconMatters:  Natural Gas Prices Bottomed. Everyone is trying to figure when the oil markets will bottom. Well lost in all the crazy action in markets globally is the nice resurgence off the bottom for natural gas prices.


Natural Gas prices have essentially gone from $1.68 per MMBtu to $2.40 per MMBtu rather rapidly in the midst of a mild winter so far.

The reason is that all those rig reductions are starting to affect the production of the commodity, less natural gas is coming to market relative to expectations.

The Lag Effect

 

The lag effect in all those rig declines is starting to show up in the natural gas production numbers, and although the cut in oil rigs hasn`t shown up yet in oil production in a meaningful way, it is just around the corner over the next three months by my calculation.

We should start to experience some meaningful U.S. Oil Production cuts by late March and early April which will solidify the fact that the oil market had long sense bottomed in January of this year.

Rigs
Fri, January 01, 2016
Change from
last week
last year
Oil rigs
536
-0.37%
-63.83%
Natural gas rigs
162
0.00%
-50.61%
Miscellaneous
0
0.00%
-100.00%

 

Rig numbers by type
Fri, January 01, 2016
Change from
last week
last year
Vertical
89
3.49%
-70.33%
Horizontal
549
-0.90%
-58.91%
Directional
60
0.00%
-65.71%
Source: Baker Hughes Inc.

 

Working gas in underground storage
Stocks
billion cubic feet (bcf)
Region
2016-01-01
2015-12-25
change
East
857
876
-19
Midwest
983
1,025
-42
Mountain
185
195
-10
Pacific
381
382
-1
South Central
1,347
1,340
7
Total
3,643
3,756
-113
Source: U.S. Energy Information Administration

Market Investment

 

By the time everyone realizes that the oil market has bottomed it is too late to make the real good, easy money off the bottom, just like in natural gas prices.

You have to be willing to step in and take the risk that prices haven`t bottomed. You basically are getting paid to buy when everyone else is selling the market, in essence, blood in the streets is the market analogy.

We accurately called the bottom in natural gas prices, we will see how close we are in the oil markets.

But we know that any investment right now in the oil market where one can stay in the trade, and not be liquidated for any reason, i.e., bankruptcy risk in insolvent company – is going to make money over a two year time frame.

Moreover, the reward will far and above exceed the risk involved, and the performance of said trade will greatly outperform the overall market returns of most other asset alternatives.

This article is brought to you courtesy of EconMatters.


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