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Gold/Mining/Energy : Big Dog's Boom Boom Room -- Ignore unavailable to you. Want to Upgrade?

To: Ed Ajootian who wrote (121697)	6/15/2009 7:44:50 PM
From: tradingfaster123	1 Recommendation Read Replies (2) \| Respond to of 206339

Ed, the UNG keeps adding assets at what is becoming an exponential rate. I wrote this post two weeks ago: Message 25688861 UNG assets were then $2.6 billion. Currently it's a little less than $4.5 billion, having added $600 million today alone. Another large day was $500 million last Thursday. If the full storage scenario comes to pass, the money flowing into UNG will be hurt badly for sure. One interesting point is that since I made that post above, the NG price is basically flat, even with $1.9 billion having flowed into UNG...which I suppose is evidence that the fund cannot keep prices above physical equilibrium levels for long in an NG market that has real constraints with regard to storage availability and pipeline takeaway capacity. One other interesting development today was the 2010 strip coming up to a new multi-month high of about $6.50 or so. So main points right now are 1)We have high inventories (+411 over 5-year average), with the excess concentrated in the producing region and west region. One startling point is that the producing region inventory is only 17bcf away from last year's end of injection season PEAK of 974bcf. that will surely be surpassed this coming thursday, months ahead of last year. on the other hand, the east is still 950bcf from reaching the PEAK of last year. so clearly the inventory overhang is concentrated in the producing region, as well as the west region to a large extent. high inventories by themselves are not crippling for the price, as we are in total only 46bcf above 2006 (though that number will grow). 2) there is still a supply/demand imbalance as evidenced by the large builds 105+. a while ago i was pointing to the LACK of 105+ builds as evidence the market was tightening. i suppose i should have waited a bit longer before jumping to conclusions. i think at the end of April and early May we weren't getting the large builds because we were in Nuclear refueling season, and gas being so cheap triggered a lot of NG demand. nevertheless, we are getting the big builds now as a result of extremely mild weather, but mostly because the supply/demand imbalance remains around 2bcfpd. its good that its down from 5bcfpd in the winter, but we still haven't been able to get the next leg down in the imbalance. once we tighten up another 2bcfpd that will be a balanced market. when that happens last week's build would have hypothetically been 92bcf instead of 106bcf. 3) rigs keep falling...production will keep heading down...and demand may rise from here. its easy to envision production falling 3bcfpd from here, demand rising 1bcfpd from here, or whatever combinations you feel is reasonable. that case of production -3bcfpd and demand +1bcfpd would equal a hypothetical build of 78bcf for last week (106-(4*7))...well under weather-adjusted 5-year averages of low 90's. 4) so we have a supply/demand balance that will tighten significantly going into the winter, and that is priced into the 2010 strip at $6.50. on the other hand we have inventories heading for capacity limits unless the imbalance falls much faster than expected, and/or we get hurricane shut-ins, etc. the producing region inventories being so high is interesting. in the past this board has discussed that storage isn't a big pot, but many small pots. perhaps some storage is already close to full in some areas, necessitating the need to shut-in production very soon? no one really knows. but then again, production is already being shut-in in some areas (by CHK for example in the barnett and midcontinent). I guess we are more interested in Henry Hub. Henry Hub is in the producing region, but given that it is a strong benchmark, I'm guessing it has a lot of takeaway capacity into other markets and/or storage availability. 5) then there's the strong financial demand via UNG and the like. with this much money coming into NG, who would want to be short at the moment? on the other hand, we've seen that it hasn't had much lasting impact except for a couple days at a time. 6)Strong storage demand because of the wide contango. So there's a lot of things going on in the NG world over the next several months. all I am doing is staying long the exploration and production stocks at the moment since winter pricing is the only thing that is clear to me (much higher prices). Short-term prices are more tricky...you could have prices crash due to the pipeline/storage constraints, soar due to UNG (though the evidence of that is so far shaky as previously mentioned), or do a whole lot of nothing, which is basically what has been going on for the last few months. $3.5-$4.5 is basically the range NG has been in. My ideal scenario is builds start to diminish aggressively in the coming weeks as summer heat picks up and lower production becomes more evident. Combine that with UNG financial flows and you get an explosive rally up to $6. But that's me dreaming right there. It could just as well go the other way to $2. The only thing certain is NG will have bottomed no later than September 26, the expiration of the october futures contract. NG will certainly be over $5 or $6 following that.