Back when everyone had given up on natgas in April when John Arnold was liquidating the Centaurus Master Fund and everyone thought it was an indication of the collapse in nattie end demand (it wasn't), the general peanut gallery said the time of bidless gas is coming. It didn't. Instead, as we then said expected, and as Goldman recommended, it was the time to buy natgas. We are now nearly 100% higher from those April lows. For those who listened to ZH and Goldman, the time to be greedy is over, and as David Greely from Goldman says, it is now "time to take profits." Feel free to sell to all those other banks who are once again about 6 months late to the party.
With natural gas prices rallying to our target, it’s time to take profit on our long summer 2013
We first recommended long positions in Summer 2013 NYMEX natural gas in April 2012
On April 11, 2012, with prompt NYMEX natural gas trading at $1.98/mmBtu, we first recommended a long position in Summer 2013 NYMEX natural gas contracts. Although we expected that natural gas prices would likely remain depressed for much of the summer of 2012 in order to motivate sufficient coal-to-gas substitution to avoid breaching storage constraints by the end of the summer injection season, we anticipated that these low prices would also drive a number of additional tightening shifts in the supply-demand balance, most notably reduced drilling activity, which combined with the expected return to normal weather for the 2012-13 winter after an extremely mild 2011-12 winter, would substantially reduce the level of coal-to-gas substitution required in 2013. We estimated that this lower level of coal-to-gas substitution could be achieved at $4.00/mmBtu NYMEX natural gas prices.
With Summer 2013 NYMEX natural gas prices rallying to our target, it's time to take profit
At the time, Summer 2013 NYMEX natural gas was trading at $3.36/mmBtu, well below our price target of $4.00/mmBtu. Consequently, we recommended buying Summer 2013 NYMEX natural gas. The trade settled today (October 11, 2012) at $4.02/mmBtu. With Summer 2013 NYMEX natural gas now trading above our $4.00/mmBtu price target, we now recommend closing the trade and taking the potential profit of $0.66/mmBtu, or 19.6%. Although we are closing our trade, we continue to expect prompt NYMEX natural gas prices to continue to rally to $4.00/mmBtu next year. Front month NYMEX natural gas prices have rallied by $1.70/mmBtu, or 89%, over the past six months to settle at $3.60/mmBtu today (October 11, 2012) after bottoming out at $1.91/mmBtu on April 19, 2012.