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More Natural Gas Gloom

From Bill Newman at Research Capital

Sell Natural Gas

Natural gas prices have been on a run recently and are up today even thought the fundamental are bearish. Natural gas inventories are at 23.3% above the 5 year average and 34% above last year’s level. Natural gas inventories are at 1,918 bcf which is 362 bcf higher than the five year average. North America production remains strong despite the fall in drilling, LNG imports are expected to be up this year and industrial demand is soft, so we expect inventories will refill quickly during the injection season and could be full at the end of September which would leave a full month of injections before the winter heating season begins. If you refill storage at the five year average rate storage will be at 3.4 tcf by the end of September would be considered full storage.  Storage could reach 3.95 tcf of storage by November (start of the heating season) which is only theoretically possible. We expect that the current natural gas price is a function of short term optimism and the strength in the equities market but once the market begins to trade on fundamentals we expect prices will  fall this summer.  Once the market rebalances due to the lack of drilling, gas prices should start to firm up early in 2010.  On today's strong natural gas prices we believe it is good opportunity to take some profit on natural gas weighted stocks and buy them back on headlines of full storage late in September.

One of the clearer calls I've heard in a while.