Nat Gas

Nat gas is in freefall after the EIA reported a much larger than expected build up in natgas inventories: the Energy Information Administration reported an increase by 78 billion cubic feet for the week ended July 2. Expectations were for a 70 bcf increase, while the last week reading was at 60 bcf. The result is a freefall in the price of nattie which has now plunged 5% for the day, and is back to early June levels. Today's move is sure to result in major adverse P&L at some of the key players in the space.

Nothing like a little flash crash in nattie on no news to spice up the day of 10% staffed trading desks. Margin calls anyone?

The pain for the onshore drillers is just starting. Following last week's explosion of an EOG Resources nat gas well in Clearfield County, Pennsylvania, the Department of Environmental Protection today ordered the firm to suspend gas well drilling activities in the state indefinitely, "until DEP has completed a comprehensive investigation into the leak and the company has implemented any needed changes." Somehow we have a feeling after today's follow up, and much more visible explosion in Texas, the reaction by the government will be exponentially worse for the nat gas drilling industry.

And the winners of the liquidation of the Lehman options and futures book are Goldman Sachs, Barclays, DRW Trading, JPMorgan, and Citadel L.P.

Buy a contango and high cost-of-carry burdened asset versus a stream of perpetual earnings? What planet am I from?

The CFTC and the SEC are both at lunch right now, as all speculators have been definitively driven out of the market.