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127 comments on DrumBeat: October 22, 2006

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jhm on October 22, 2006 - 10:15am Permalink | Subthread | Parent | Comments top
Nymex has the Dec '07 contract at $9.176 and the Dec '11 at $7.592!

What is the consensus about the tail of the strip for energy futures?

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elwoodelmore on October 22, 2006 - 10:26am Permalink | Subthread | Parent | Comments top
dont believe you will make a lot of money in any market based on consensus       just my opinion    i have a brother in law  who reads every newsletter he can get his hands on    and he is in a constant state of confusion
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Nate Hagens on October 22, 2006 - 5:39pm Permalink | Subthread | Parent | Comments top
Nymex has the Dec '07 contract at $9.176 and the Dec '11 at $7.592!

What is the consensus about the tail of the strip for energy futures?

By definition, the consensus is exactly the prices you indicate - the market is a dollar weighted aggregate vote of consensus, and given the distribution of size and shape of players, probably a pretty good people vote as well as dollar vote

Bulls will point to NA supply cliff, written about here.  They will also point out that a price floor seems to have been reached, as producers will willingly leave gas in ground if they cant make money on it.

Bears will point to the price elasticity of demand for moving industry offshore if prices get high enough. They will also point to a large increase in expected LNG imports. The more esoteric among them will point to global warming trends reducing the amount of gas needed for heat in winter.

Myself, I see gradually higher highs and higher lows with increased volatility over next 5 years, including periodic outages, brownouts and blackouts. The risk reward long term favors buying these contracts insofar as you can make more than you can lose - but a warm winter 2006/7 and you will lose money near term almost for sure.  Better to buy natural gas stocks with long term quality reserves which might have less volatility than the futures. But as always, depends on your risk parameters and objectives.

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jkissing on October 23, 2006 - 1:26am Permalink | Subthread | Parent | Comments top
bears might also point out that some industrial users, eg fertilizer and plastic precursors, are moving offshore... or, to put it differently, the onshore producers can't compete against those producing from cheaper supplies. Moving these uses offshore is both cheaper, less risk, and more energy efficient that importing lng to continue doing these things here.
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alistairC on October 23, 2006 - 7:59am Permalink | Subthread | Parent | Comments top
mmm yes but beware of false outsourcing analogies.

Manufacturing labour may be outsourced to places where wages are always going to be significantly lower.

But where are these places that have long-term cheaper energy prices for manufacturing?

... the moons of Saturn?

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AlanfromBigEasy on October 23, 2006 - 8:16am Permalink | Subthread | Parent | Comments top
Qatar
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jkissing on October 23, 2006 - 11:20am Permalink | Subthread | Parent | Comments top
All of those places that are planning large lng projects, including qatar, as noted by alan below, plus australia, iran, even tobago.  The total cost of liquifying ng, transporting it in special ships, gasifying it, and finally selling it at current US prices of 7/mcf means the value in the exporting country is maybe half, say 3.50/mcf.  Naturally it would be cheaper to make fertilizer/plastic precursors with 3.50 input and then shipping the easily shippable products.
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127 comments on DrumBeat: October 22, 2006

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