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Diapason Nat Gas_2012!01!26

Diapason Nat Gas_2012!01!26

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Published by: derfem on Jan 31, 2012
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07/25/2013

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 For important Disclaimers and Disclosures, please refer to the last two pages of this publication
The Diapason Capital Markets Report
 
JANUARY 26,2012
ENERGY REVIEW
 
Key economic data this week 
FHFA house price index highest since 2005
Dec pending home soften slightly, still firm
Dec existing home sales still trending higher
FOMC extends low rate guidance till 2014
Initial claims plummet the most since 2005
Eurozone flash PMIs surprise to the upside
German IFO survey rise for third month straight
Belgian business confidence rise a second month
 
Is the Natural Gas rebound sustainable? Perhaps not yet at this time 
Natural gas prices hit their lowest price levels since 2002 during the current decline at $2.289 in the March contract buthas recovered by as much a 18.5% since Monday after Chesapeake Energy Corporation (the US’ second largest naturalgas producer) said it will reduce dry gas drilling activity and production with immediate effect.
The price reversal looks dramatic, but what can we reasonably expect for natural gas prices development from here? Theanswer is not straight-forward, but net-net, Chesapeake's cutbacks is a very good start, and this may indeed the begin-ning of a stability for natural gas, but much more has to be done by producers to prevent prices from sliding further.
There remains no clue as to when balance will be back in this market, so there are other good reasons to be cautiousabout the recent large rebound in prices in the U.S. We do not believe that we have seen the bottom in gas prices thisyear. Stabilization, yes, but absolute trough -- perhaps not yet. Conditions for gas investment may be better by mid-year.
Other companies may announced drilling cuts in the coming months if prices do not rebound to more healthy levels(around $4 per million Btu). Encana, the U.S. fifth largest producer, is likely to be the next to announce drilling cuts.
Chart of the Week:High oil price shift rigs from Gas 

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