Mostly: Classical

[amarksp]

NatGas
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Looks like NatGas prices continue downtrend until mid Oct, then should be time to buy NatGas stocks...
http://www.investorshub.com/boards/board.asp?board_id=5931
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Interesting posts Robry:
Back in April, as we exited winter with record storage, the forward futures were priced at a premium to cash in such a way that, theoretically, an industry insider (one that posessed pipeline capacity rights) could have purchased gas at spot and stored it, sold a futures contract against that stored gas (with the intent of making delivery), and pocketed the difference. Back then (on the last day of march), Henry-Hub futures were priced to premium (vs cash) as follows:

........................3/31............Contract-To
.......................Close.......Cash Premium
......Cash HH...6.980.................n/a
......06-May......7.210...............0.230
......06-Jun.......7.420...............0.440
......06-Jul........7.625...............0.645
......06-Aug......7.777...............0.797
......06-Sep......7.890...............0.910
......06-Oct.......8.060...............1.080
......06-Nov.......9.125...............2.145
......06-Dec.....10.065...............3.085
......07-Jan......10.715...............3.735
......07-Feb......10.710...............3.730
......07-Mar......10.525...............3.545

Theoretically, an industry insider could have purchased spot gas & injected, wrote a winter contract (06-Dec through 07-Mar), and pocketed better than $3 on the headge... IF storage capacity could be found. Trouble was, storage capacity was not to be had, as most storage is probably contracted (if not owned outright) to Distribution-utilities for the sole benefit of their customers. But storage capacity was to be had... for the interruptible-type storage you are looking at, on a short term basis prior to the fall shoulder, and I do remember one night (just for fun) sifting through transactional reports on one of the web sites (believe it was Egan) and found several deals were done.

One month later, the Henry-Hub futures were priced to premium (vs cash) like this...

........................4/30............Contract-To
.......................Close.......Cash Premium
......Cash HH...6.650.................n/a
......06-May........n/a...................n/a
......06-Jun.......6.555..............(0.100)
......06-Jul........6.810...............0.160
......06-Aug......7.055...............0.405
......06-Sep......7.298...............0.648
......06-Oct.......7.663...............1.013
......06-Nov.......9.133...............2.483
......06-Dec.....10.583...............3.933
......07-Jan......11.358...............4.708
......07-Feb......11.365...............4.715
......07-Mar......11.168...............4.518

Notice how the Contract-to-cash-premium decreased sharpley for the 06-Jun through 06-Sep contracts, but increased sharply for the 06-Dec through 07-Mar contracts. I wonder if the difference in performance might be due to a situation where speculators were buying contracts (on strengthening oil prices/fundamentals) while at the same time some industry insiders (with pipeline capacity rights) were selling contracts & buying spot with the intent to deliver.

That would be an explanation as to why at the time natgas held up well (in price) in spite of the record storage, why storage injections continued to be so robust last spring (well above what LDC's would require for maintaining their injections), and why natgas prices would then collapse deeply into demand-reasurrection in August (In essence, writing contracts with the intent to deliver (never cover) would create a "Hot Potato" contract to any speculator who purchased it- a contract that would loose value progressively until another speculator could be found to pass it off to- until finally the price got low enough that some fuel-switching entity would bite on it.)

Now I don't see anything in this that I would think of as "Manipulation". It is more the case of wise industry-insider management taking advantage of the foolishness of speculation, and it probably trims a few cents (per mcf) off of consumers energy bills. (As an asside... I remember as a kid my father repeatedly getting phone calls from boiler-room-style commoddities brokers. He would just laugh it off but a lot of folks had to have been hurt by them... enough to pay all the salaries of the boiler-room-boys at least).

One thing about futures... because for every contract there are two sides, for every profit there is a loss, and for every dollar a trader makes, there will be another dollar lost- probably by the industry (and ultimately passed on to the consumer). This is one big reason I don't trade the futures, because I know where my profits would ultimately come from. Ultimately, futures contracts only transfer wealth, while drilling (E&P's) create it (by creating something new of value- reserves). For reasons of faith and ethics, I find it better to trade the E&P's than the futures.

-Robry825
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Posted as a reply to: msg 6027 by robry825
The opposite effect has been happening lately and has lead to the withdrawals from storage we've seen in 2 of the last 4 weeks. I'm a very active participant in the trading of the these cash-futures spreads and moving storage around to profit for our customers. During the hot spell cash prices were trading well over futures, so we pulled from storage and sold at higher cash prices and bought future months to reinject the gas at lower prices. I believe this was happening a lot, which may lead to stronger than expected injections during Sep and Oct. We'll see.

Another good post Robry.

$4