From the May 01, 2012 issue of Futures Magazine • Subscribe!

Natural gas burning low

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Some analysts have described natural gas’ price collapse as “epic” in proportion. With prices currently the lowest they have been in more than 10 years, it’s staggering to think that some analysts say prices need to fall further  for this market to find a bottom.

“This is a market that is on death watch. I’ve been calling it a slow motion train wreck,” says Phil Flynn, senior energies analyst at PFGBest. He says the fracking revolution continues to be the cause of historically low prices. “A lot of people still are in denial about how much gas is being produced by fracking. People look at overall rig counts, but they don’t realize we’re getting so much more gas per rig because of fracking and directional drilling that we ever did from a regular rig,” he says. Barring an exceptionally hot summer, Flynn expects prices to make new all-time lows below $1.36.

Dominick Chirichella, founder of the Energy Management Institute, agrees and says natural gas simply is oversupplied. “Until I see an indication of significant supply cuts, I can’t get too bullish on natural gas. We’re already at 61% of maximum capacity,” he says, noting that we’re not even into the traditional storage season. He doesn’t expect prices to turn around until producers start to cut production, something he says they will be hard pressed to do. In the short-term, Chirichella sees resistance at $1.95-$2.00 and support at $1.70-$1.75. He says prices eventually could fall as low as $1.50 “if the producing sector is very stubborn.”

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