Gas Petrospective – October 7, 2010

Natural gas prices rallied a little more than 12 cents per million Btu yesterday as traders bought into low prices. It had the look of classic bargain-hunting and short-covering, and it seems to have been triggered by the market’s proximity to its low at $3.61.

A number of traders and investors have been wondering why natural gas prices are as low as they are, especially with every commodity on the board suddenly in heavy demand – regardless of supply. Just having investors unfamiliar with the market asking innocently, “Why not gas?” seems to have been enough yesterday to boost quotes. It is a question we expect more investors to ask as the risk play gathers steam, assuming that it may. But, if investors can swarm to buy oil contracts, where supplies are near record highs, then they can certainly show a passing interest in natural gas. Just because there are a number of funds using this market as a hedge against general commodity weakness does not remove it from the list of possible investments. In this regard, the longer-term investors who know nothing about gas may find themselves hoist on their own petard by newer investors who know nothing about gas or its recent history. It would be altogether fitting, although it will take time for natural gas to become a fully integrated global commodity. It is coming, though.

Traders will have something more substantial to sink their teeth into today, with the weekly EIA underground storage report. A survey of analysts by Dow Jones is looking for an average build this week of 78 bcf.

 Technical Recap

 NG Options Report

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