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In
mid-July, I warned that natural gas prices were likely to head lower under
typical seasonal pressure, but how's it acting now?
At first
glance it looks like gas may be making yet another late summer low, just as
it has done in every normal year this decade. I say "normal" year
because natural gas didn't make a late-summer low in '05, but that was due to
Hurrican Katrina. Take a look:
 
Looks
like we've set up for another autumn bump in natural gas prices right? Maybe.
Here's a closer look at recent price action via a 1-year chart, though:
The
deeply oversold conditions of the last few weeks have been worked off slighty
while nat gas has headed... lower. That's not good technical action.
Fundamentally,
inventory data like today's supply build is really tough to
rely on for more than a very short-term impact on price. It's more important
to look at big picture issues like the fact that global gas consumption has
continued to grow despite elevated prices (positive), the return of the North
American winter (typically a positive) and the attractiveness of nat gas as
substitute for oil (an increasing negative given crude's recent decline),
then just understand that bigger price whipsaws will occur due to weather, a
reality unique to natural gas.
So, it is
reasonable to think we're putting in another late-summer low and that natural
gas is a buy right now? I'd say that's a trade for more aggressive types
only, and they could look to scale in via the gas ETF (NYSE: UNG) or gas-focused energy trusts like
Advantage (NYSE: AAV) or Toronto-listed trusts like Progress
Energy (TSX:PGX-UN) or Paramount Energy (TSX:PMT-UN).
Given the
lack of traction in commodities prices (except precious metals), however,
more risk-averse investors might be wise to sit tight and wait for better
price action in natural gas to believe it's living up to its seasonal
pattern.
*Visit my
weekly podcast, "Market Neutral," by clicking
here!
Chip Hanlon
President,
Delta Global Advisors, Inc.
19051 Goldenwest, #106-116 Huntington Beach, CA 92648 Phone: 800-485-1220
Fax: 800-485-1225 www.deltaga.com
A widely-followed market
commentator, Mr. Hanlon served as the C.O.O at Euro Pacific Capital prior to
taking the reigns at Delta Global. He had previously been the President of
Unfunds, Inc. and spent 7 years prior with Sutro & Company as a Vice President
and the company's Los Angeles Director of Syndicate Offerings.
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