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Natural Gas Prices

from ChartWorks:: published by Institutional Advisors

Bob Hoye
Technical observations of RossClark@shaw.ca
November 17, 2006

Natural gas has now staged its normal rally out of the seasonal low with the spot price up 94%. This rally was anticipated to last six to eight weeks, into late October or early November. Barring abnormally cold weather a trading range can be anticipated between $6.00 and $9.00 through mid December. The next important low will likely be generated in January/February with the later half of 2007 producing a rally that makes a 21-month high.

Arrows identify when inventories were at multi-year highs in the first week of September and again at the peak in November

Working Gas in Underground Storage
(First week of November marked in red)
Inventories are now two weeks past their peak and can be expected to work lower into March.

Price activity in years where the inventory was at a multi-year high in early September

Many things stand out as a result of in the years with high inventories.

  • The period from now through the middle of December produces a trading range in the price activity. For traders, positions in shares of gassy stocks can be reduced during periods of strength.
  • Unless there is an abnormally cold stretch that causes a quicker that usual drawdown in the inventories (i.e. Dec ’02) we would expect a price decline from mid December into January/February. It could easily test the $4.50 level. Technically, we’d look for the CCI(20) oscillator to generate a reading below -100 and the weekly RSI(14) to make a ‘stepped up’ low from the 37 recorded on September 22nd. This should produce a good opportunity to overweight portfolios in shares of gassy stocks.
  • The rally into the spring is followed by an even better rally into the fourth calendar quarter. Overall, next year’s high should be capable of making a 21-month high.

The stocks are clearly influenced by a combination of the gas price, crude oil and the broad equity market indices. A study of Encana and Talisman shows that on third of the action through the first and last calendar quarters can be attributed to the overall market.

Canadian Royalty Trusts

Most royalty trusts were rallying well from the September low, but have given up 20% (+/- 5%) since the Conservative government’s proposed tax changes on October 31st. The heaviest volumes occurred on the November 1st and 2nd with lighter selling pressure this week. Once the selling pressure abates and prices put in a successfully tested low it would be realistic to look for to rally back to the late June lows.

Bob Hoye
November 17, 2006

EMAIL:: bobhoye@institutionaladvisors.com
CHARTWORKS WEBSITE:: www.institutionaladvisors.com

The opinions in this report are solely those of the author. The information herein was obtained from various sources; however we do not guarantee its accuracy or completeness. This research report is prepared for general circulation and is circulated for general information only. It does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. Investors should seek financial advice regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. Investors should note that income from such securities, if any, may fluctuate and that each security’s price or value may rise or fall. Accordingly, investors may receive back less than originally invested. Past performance is not necessarily a guide to future performance.
Neither the information nor any opinion expressed constitutes an offer to buy or sell any securities or options or futures contracts. Foreign currency rates of exchange may adversely affect the value, price or income of any security or related investment mentioned in this report. In addition, investors in securities such as ADRs, whose values are influenced by the currency of the underlying security, effectively assume currency risk.
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