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Napanee, Ontario | well the price direction call was a lot easier for me a month ago when i made this post
http://talk.newagtalk.com/forums/thread-view.asp?tid=547995&mid=450...
At that time i was basically saying that the price seemed too low for the inventory fundamentals... given where the price vs inventory was last time NG had a mid $2 handle (2012).
You will also see in that post where I made this comment:
"Perhaps the trade is anticipating a unusually high build rate in stocks this summer. The slope of last years summer build was higher than previous years, so even though we came from a low water mark on 2013 winter storage (800 BCF in Mar 2014), the summer build rate was fast, and closed the gap as inventory almost reached seasonal figures last fall be fore draw downs started. Perhaps the trade is looking at the same thing again... but 2.50 seems like a lot of pessimism for that outlook - ie that result is baked in and more."
You can see on the storage graph below that this steeper build rate (slope of the blue line) has indeed materialized, and has already reached the 5 year average stocks line. IMO, The supply fundamentals are leaning bearish unless we get some huge heat (read A/c use) draws to slow the slope(build rate) down. This is why the trade has this thing barely over a $3 handle when the stocks are currently @ the 5 year avg. They are looking at this chart and seeing that if you project that built rate into the beginning of the drawing season this fall, we will be sitting at records stocks.
So, LOL, as flimsy as this answer may be, the long side is going to depend on the weather here. Again IMO. Cause these guys are still drilling like there is no tomorrow, as well can see on that build rate slope..... ( and for many of the high yield debt start-up drillers, there literally isn't a tomorrow, and they have to keep producing to pay debt service costs /avoid covenant triggers).
IMO, this situation is going to blow up at some point in not too distant future, when enough venture capital, private equity, and main bank finance guys realize that the EUR's on these dry shale wells arn't what they were SOLD to be. There is almost NO company out there profitable at $3 gas, or even $4 gas when you factor in what the REAL EUR's on these wells are. The flow decline is much faster than the investment pitch... surprise surprise.
So as a result the game has become to keep starting new wells, as new well have withdraw flows front loaded, which essentially mask the problem of real long term losses. The high front loaded flows give them the cash flow to make bank, flows that won't exist in a year or two. This is why there is such a glut... these companies are literally cannibalizing each other in a race to last man standing.
Its basically a ponzi scheme to do what they are doing, but they are looking at it from the lens of survival at $2 and $3 gas.
Probably more than you wanted to know... But IMO, the best time to be long the commodity will be once financiers start wising up and shutting off the proverbial spigot... blood in the streets and such. right now I couldn;t say with certainty where it will go after this last 20% move.
Edited by OldMcdonald 5/17/2015 21:23
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UGAZ?
