I have been taking a beating on natural gas and wondered what you might advise.
Thanks for the assignment. Not sure what tool in the investment universe you are using so lets just focus on the price of the commodity itself. Energy prices have been on the decline as the result of oversupply in the market. The amount of natural gas has been greatly increased as unconventional reserves have been developed using directional drilling technology and hydraulic fracturing.
The inability to move pipeline projects through the regulatory gateway that would move volume to deep water ports on the Atlantic or Pacific coasts has been one barrier to exporting the excess supply to energy hungry markets overseas.
The other roadblock is the paucity of gas liquefaction plants on the continent. Ten years ago the thinking was that we would be importing natural gas from offshore as the supply outlook pointed to shortages. Nothing like a dose of advanced energy technology to disrupt the market. Great for consumers but very bad for producers.
An inspection of the charts will form the basis of my advisory.
The three-year chart has a number of interesting patterns worth discussing. The spike high in February of 2014 was driven by the polar vortex that descended on North America last winter. As we used to say in Calgary - COLD IS GOLD FOR NATURAL GAS! When you get a good long cold snap the flow of gas hitting burner tips is so aggressive that it depletes storage and drives demand. Of course as the cold weather abates demand falls taking the price with it.
By early June of 2014 the price of natural gas broke support at $4.25 with a death cross surfacing later in the month. The attempt to move higher in late 2014 was crushed by the Saudi Arabian decision to keep their taps open and put non OPEC suppliers into a death spiral.
The six-month chart clearly indicates that going long on natural gas would have been the wrong strategy. The resistance along the 50-day moving average has proven challenging along the decline. Currently there has been a move above resistance but its too early to tell if its sustainable.
If you are going to chase natural gas you will have to be patient as there is nothing to indicate that we can expect a trend reversal.
Next time I will analyze Mood Media Corp. (MM TSX) and NeuLion Inc. (NLN TSX) for Jim.
Make it a profitable day and happy capitalism!