Monday, September 14, 2009

Spot Price Down, Futures Up

The Henry Hub spot and near month futures prices diverged sharply today. The futures price traded up all day, ending up 15% at $3.42, but the spot price was down 4% to close at $2.82.

I read an article today noting that Goldman Sachs analysts predict that natgas prices will rise to $6 this winter and $7.50 next summer because of production declines. While I want to believe this, I don't think we've seen the kinds of production declines we've expected with such a drastic decrease in rig count. Producers have cut back, but they are focusing on fewer, bigger wells, so production hasn't dropped as much as people were expecting it to six months ago. Plus, if prices start to rise, producers are going to open the spigot on the wells they have choked back over the past few months. Until demand picks up to a sustainable level, I think "turn the dial" production increases are going to beat back price increases.

But what do I know? I'm not a well paid Wall Street analyst. Heck, I don't even get paid for this! I hope they're right. Stock market analysts, for as smart and well informed as they are, can be wrong. Now, if Goldman is trading on this expectation, I would have much greater confidence.

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