Positives for Natural Gas Prices
- Natural gas in storage is down 10.1% from a year ago at 2.107Tcf vs. 2.344Tcf, for the week ending May 27, 2011.
- Overall consumption Y/Y is up +2.5%. In the Users Component,
- the best demand growth Y/Y was in the Electrical Power area with a 4.2% increase.
- The inventory/sales ratio for natural gas is improving. For the month of March 2011 the ratio stood at 25.6 days as demand was 71.4Bcf/d In March 2011. The inventory/sales ratio is down from the March 2009 high of 27.1 days.
- It appears that shale production is peaking and conventional production is falling rapidly. Production fell in March 2011 by18.7% in the Gulf of Mexico and by 10.2% in Wyoming versus March 2010 data.
Negatives for Natural Gas Prices
- Dry Natural Gas production continues to increase Y/Y, up 5.4% for March 2011 over March 2010.
- We expect consumption to strengthen further, putting upward pressure on the price of natural gas. Look for NYMEX to be >$5/mcf for a sustained period during the injection season and for AECO to move over $4/mcf over the same period. Prices should move up to US$7/mcf for NYMEX and C$5/mcf for AECO by winter 2011‐ 2012.
- We remain convinced a bottom was reached in October 2010 for natural gas prices and recommend investors Buy favourite natural gas producers for this new natural gas cycle. Use periods of market weakness to add to favourite Natural Gas investments.
- Our top Maison covered Natural Gas Recommendations are: DEE, GO, GSY, and VRO
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