Replies to This Discussion

Permalink Reply by jim weyland on January 30, 2014 at 6:06

i think this serves to confirm that the shorts got slaughtered with the feb contract's expiry yesterday:

http://www.bloomberg.com/news/2014-01-29/natural-gas-drops-second-d...

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Permalink Reply by tc on January 30, 2014 at 6:26

And today the longs are getting hurt.  These moves always remind me of the movie "Trading Places".

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Permalink Reply by jim weyland on January 30, 2014 at 6:44

yes sir. it's my guess that those creaming the shorts yesterday are the same ones that are clocking the longs today. 

in a related note, i'd imagine that producers were selling into the market yesterday as fast and as far out as they could. yesterday was a belated christmas gift to them.

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Permalink Reply by Joe Aldridge on February 3, 2014 at 13:45

Trade day 2/4/14 After hours trading 2/3/14 $5.049

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Permalink Reply by Joe Aldridge on February 5, 2014 at 2:35

Its 7:15 AM and we are already at a new high $5.645. It looks like the run is on for $6.00. 

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Permalink Reply by adubu on February 5, 2014 at 2:51

JA--- how about $5.71    Agree will not hold these levels, but with Feb on it's way to be coldest Feb after coldest January in many years the Supply Storage could end withdrawal season below 0.5 Tcf by late March. This should place a FLOOR on Nat Gas at $4 over next few years IMO

Futures still in Backwardation with April in $4s. That is good sign since  Backwardation is more bullish than Contango  

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Permalink Reply by adubu on February 5, 2014 at 3:05

Jay--- yes that because futures are in Backwardation which I read as Bullish for spot prices going forward next several months if not longer. Remember several years ago when prices were above $10 with futures out many months or couple years in the $12+ range- ---    ( Contango) this was Bearish Sign and prices as predictable fell each month to settle at spot price lower

Contango in futures is great time for large Operators to Hedge the market out for 3-5 years, but today most are not hedging big positions 

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Permalink Reply by tc on February 5, 2014 at 4:56

Backwardation is not bullish for the operators, royalty owners or the Haynesville.  It is bullish for ETFs and traders who sell at the higher spot prices and replace their position with lower future prices.  Its also questionable if it is bullish for spot prices, a lot of that depends on the reason for the backwardation.  If the reason is because the traders see massive supply in the future, it is bearish for spot prices in the coming months as that supply will depress future spot prices.

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Permalink Reply by adubu on February 5, 2014 at 5:30

Tc-- think you reading it wrong -- if traders sell spot and hedge it with lower future prices then they get into a negative curve spread and have to pay up to cover their future contact at spot price to close out position -- just like a bank loaning money out 30 years on fixed rate with money they buy with short rate interest CDs-- then when interest curve invert from positive to negative the banks lose big time because they will have to roll the short CDs and have to pay higher interest on money they buy.  Banks that make loans have two risk-- investor and interest rate risk --- As long as interest rates stay in Contango they make money-- same as operator makes money on hedge of futures--- however royalty owner do not get any of operator hedge profits

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Permalink Reply by adubu on February 5, 2014 at 5:57

Jay-- Why would operator want to sell gas for $4 out two years unless you think market will crash again into $2-3 handle-- that would be gambling and leave lots of money on table-- $4 gas hardly covers present cost to drill new wells. I can understand if was in contango prices in 5.50 to 6 range because they would have good profit at any price at time of delivery and yes that would be good for royalty owners since more drilling would occur so it's a mixed bag . If operator hedges large amount now that would be negative for royalty owner because operator would not have reason to drill more alternative wells in unit. If Contango then hedge and then drill more wells good for royalty owners-- if spot prices continue to increase it would raise all prices and operator will drill again more wells and hedge if futures get > $5 out year or so-- that what it appears will happen price increase because lots of rigs idle and supply relatively less --- reason backwardation is tech positive for prices  

Another typical cycle of market prices up and down we go -- We will see Contango again in future

Presently it's like an inverted Yield curve on interest rates -- need long term prices to increase 

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Permalink Reply by jim weyland on February 5, 2014 at 6:09

fwiw, today's houston chronicle reports that oncor, nee txu, is going to restart three idle coal fired units citing their now being in the money given the runup in ng prices. presently, there's an awful lot of idled coal fired capacity across everyones' fleets.

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Permalink Reply by adubu on February 5, 2014 at 6:20

Contango on interest rates ( ie Positive yield curve ) is bullish for Bank Stocks they make money v Backwardation ( Negative Yield curve) Is bearish for banks they lose money on fixed rate loads-- Reason for Variable Interest Loans to decrease interest rate Risk to banks when yield curve get flat

Different story with gas, oil, index stock futures

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