Wednesday, March 21, 2012

Some Natural Gas Color

From Barron's:

"Natural gas continues to get punished as the record surplus in storage brings some nervousness in the market. Everyone is talking about a $1 handle for the futures market, but when you take a look at the cash market, we are already seeing $1 handles … The lack of [cold] weather and steep fall in natural gas prices have led to a large amount of coal-to-gas switching … [though] we don’t expect this trend to continue … expect volatility in the natural gas market to continue with large up and down days … we are modeling storage capacity to reach full capacity earlier than expected, bringing the chance of a $1 handle in the summer and even possibly in the next month or so. Suffice it to say, the ability to reach a more equilibrium supply-demand balance solely rests on slowing down dry gas production even further, as associated gas has offset any of the recent declines."

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