Goldman Closes Nat Gas Short, Sees Higher Prices Ahead

Two weeks ago we reported on Goldman's natgas trading recommendation change, after analyst Samantha Dart said to short at $4.84. Well, in what may be the first time in 2011 in which a Goldman trading reco has lead to client profits (and Goldman prop losses), the firm apparently has just reached its breaking point on how much losses it can take, and just announced it is closing the short. "Closing: Short October 2011 NYMEX Natural Gas (initial price $4.84/mmBtu, closing price $4.33/mmBtu, gain $0.51/mmBtu) We close our short trading recommendation in the October 2011 NYMEX contract, as prices have corrected in line with our expectations. We also see increased price support from higher coal prices going forward, which allows for coal-to-gas substitution at a higher price level." Confirming Goldman's now suddenly "bullish" bias is the firm's reco to go long Q4 2012 ICE natgas: "Long UK NBP Q4 2012 ICE Natural Gas contracts (initial price 70.8 p/th, current loss 0.8 p/th) We recommend opening a long position in the UK NBP Q4 2012 contracts, as we expect a continued tightening of global LNG markets to lead to a reconnection between spot prices and oil-indexed prices in Europe, with spot gas pricing above oil-indexed in the beginning of the winter to attract incremental volumes for the peak demand period. This reconnection between spot and oil-indexed natural gas prices in Europe is not currently priced in the UK NBP forward curve." In summary: "outside of the United States, after two years of a cyclical surplus, the tightening has been accelerated by the recent events in Libya and Japan. As a result, we expect future global demand growth to test effective LNG production capacity, ultimately leading to a re-connection between UK NBP and oil-indexed gas prices this year on a sustainable basis."

Full report below:

GS Nat Gas Watch