I'm Drawn to Come-Hither Allure of Natural Gas

 | Oct 06, 2016 | 3:00 PM EDT
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cxo

I know, I know. All the sexy in the energy world right now is in oil -- what with the latest OPEC "arrangement" on quotas and the ramping up on stock prices of oil companies, particularly in the Permian Basin. I'm trying to find a place to add to positions in oil myself, if only the oil market would lose a bit of the excitement from a lousy print over $50. Fifty? That's not a rally -- and the prices we're seeing on Wall Street Permian darlings like Pioneer Resources (PXD) and Concho (CXO) are way ahead of $50 oil. 

But natural gas -- that continues to call me. It's not sexy, for sure -- no big surprise announcements of concerted efforts to control supply, nor a big hot new play that's got everyone ready to spend money on virtually any acreage, dry or not. But the numbers keep pouring in, making natural gas look like the real opportunity heading into the late fall and winter, not oil. 

Let's start simple, with supply: 

What could be simpler than this? Natural gas production is turning downward for the first time in four years and significantly downward for the first time in more than 10. 

On the other side of supply is demand, where power generation from natural gas has not stopped growing, despite the slowing supply. 

For the commodity itself, the chart looks equally dull -- since the big run in nat gas prices during the early summer, as a national heat wave put some upward pressure on prices, we've seen very little motion past the $3 per million Btu that has mostly bounded the upper limit on nat gas since. 

But, just as there is quiet along the Florida coast today as it awaits Matthew, perhaps there is a bit too little noise in the natural gas market as winter approaches. We know the most difficult but important input to nat gas prices to predict is weather, but the evidence of a very tough winter is starting to grow. Reuters reports the likelihood of the "'return of the blob," a meteorological abnormality that drops the jet stream lower across the northern U.S. This combined with several reports of the likelihood of an El Niño event could be the final straw in a natural gas price that has stagnated for the last four months. 

Perhaps most sexless are the stocks -- none of their charts look interesting at all: 

All of these scream BORING -- and don't look ready to go anywhere, up or down, with force. 

But too much is accumulating for me to ignore these stocks, still my three favorite dedicated natural gas companies. 

Of all the high-profile headline news going on in the energy space, I'm concentrating on some of the most boring energy stocks out there -- but they are the ones I think will generate the biggest profits during the latter part of this year. 

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