Natural Gas Prices Signaling Oil Bottom for Investors

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By EconMatters

  
Natural Gas Prices Bottomed

 

Everyone is trying to figure when the oil markets will bottom. Well lost in all the crazy action in markets globally is the nice resurgence off the bottom for natural gas prices. Natural Gas prices have essentially gone from $1.68 per MMBtu to $2.40 per MMBtu rather rapidly in the midst of a mild winter so far. The reason is that all those rig reductions are starting to affect the production of the commodity, less natural gas is coming to market relative to expectations.
 

 

  
The Lag Effect

 

 

The lag effect in all those rig declines is starting to show up in the natural gas production numbers, and although the cut in oil rigs hasn`t shown up yet in oil production in a meaningful way, it is just around the corner over the next three months by my calculation. We should start to experience some meaningful U.S. Oil Production cuts by late March and early April which will solidify the fact that the oil market had long sense bottomed in January of this year.

 

Rigs
   
 
Fri, January 01, 2016
Change from
 
last week
last year
Oil rigs
536
-0.37%
-63.83%
Natural gas rigs
162
0.00%
-50.61%
Miscellaneous
0
0.00%
-100.00%

 

 

 

Rig numbers by type
   
 
Fri, January 01, 2016
Change from
 
last week
last year
Vertical
89
3.49%
-70.33%
Horizontal
549
-0.90%
-58.91%
Directional
60
0.00%
-65.71%
Source: Baker Hughes Inc.

 

 

 

Working gas in underground storage
 
Stocks
billion cubic feet (bcf)
 
Region
2016-01-01
2015-12-25
change
 
East
857
876
-19
 
Midwest
983
1,025
-42
 
Mountain
185
195
-10
 
Pacific
381
382
-1
 
South Central
1,347
1,340
7
 
Total
3,643
3,756
-113
 
Source: U.S. Energy Information Administration

 

 

 

Market Investment

 

 

By the time everyone realizes that the oil market has bottomed it is too late to make the real good, easy money off the bottom, just like in natural gas prices. You have to be willing to step in and take the risk that prices haven`t bottomed. You basically are getting paid to buy when everyone else is selling the market, in essence, blood in the streets is the market analogy. We accurately called the bottom in natural gas prices, we will see how close we are in the oil markets. But we know that any investment right now in the oil market where one can stay in the trade, and not be liquidated for any reason, i.e., bankruptcy risk in insolvent company – is going to make money over a two year time frame. Moreover, the reward will far and above exceed the risk involved, and the performance of said trade will greatly outperform the overall market returns of most other asset alternatives.

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Fri, 01/08/2016 - 06:53 | 7016005 overmedicatedun...
overmedicatedundersexed's picture

I am long, so you should be safe in your short. heck i bet obuma an obvious drug using, bisexual, affirmative action,indoneasian manchurian candidate, would never be elected( for more confidence in how wrong i can be)..short oil - i will let you know when i sell my longs - then you can go long and sleep like a baby.

Fri, 01/08/2016 - 01:15 | 7015710 Fed-up with bei...
Fed-up with being Sick and Tired's picture

It will be clear when this short is broken, then buy on the waves of BIDDING and do not take a chance of being a bottom picker.  WHO IN HECK ARE THESE GUYS?

Fri, 01/08/2016 - 08:38 | 7016301 mtl4
mtl4's picture

X2

 

What a joke, I'm not into catching falling knives either so quite premature on this one.

Fri, 01/08/2016 - 01:14 | 7015706 Fed-up with bei...
Fed-up with being Sick and Tired's picture

This imbecilic post is ridiculous by any trading standards as it infers that a "trade is on" off of a perceived bottom, based upon concocted inventory Numbers  - - who wants to believe that OIL numbers, inventories, etc., are somehow based upon truthful assertions but the rest of the market is all based upon untruthful numbers???

The issue I have with this is the presumption that all traders want to trade FROM EXTREMES!   Nothing can be further from the truth.  I am a pro WTI swing trade specialist, and I make a living on the DAILY moves in CRUDE which are my bread and butter.  WE WANT TO SEE CONFIRMED squeezes here, not CATCHING A BOTTOM.   One does not NEED to CATCH THE BOTTOM!  This is absurd.  Anyway with a mere 10 contracts YESTERDAY ALONE, I booked nearly $16K in one short move (I am still short Crude until it is proven otherwise).  DO NOT GO LONG until you see ranges above us break!

 

 

Fri, 01/08/2016 - 04:49 | 7015876 44_shooter
44_shooter's picture

What do you know?
1)I'm doing better than I was 8 yeas ago.
2)Janet and the media says the economy has turned around.

Hallelujah, praise the Lord -I'm going all in.

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