Gas Is Exploding
August 4th, 2006
Above you see a price “explosion” for natural gas to $7.99. At the moment, the record heat wave that is threatening many power grids throughout the U.S. including the one that serves your editor here in NYC is leading to a very rapid depletion of what was a higher-than-normal supply of natural gas. That is the reason for the sudden and powerful move for the price of natural gas. Investors were lulled to sleep by a very mild winter last year that led to higher-than-normal natural gas supplies. According to a Wall Street Journal article on July 31, the Department of Energy’s statement that natural gas supplies were 40% above normal was a fabrication, because we simply don’t have enough storage capacity for the country to have stored that much gas. We did have something like 20% above normal supply, but not 40%. But here is the real shocker. According to that same article, this scorching heat wave has led to such a rapid drawdown in the nation’s natural gas supplies that we are now down to a level that is normal for the middle of September! Another week or two of this heat—which in fact is now being forecast—could lead to a very, very dramatic rise in the price of natural gas, way beyond current high levels. And don’t even mention the potential for a hurricane or two thrown in for good measure!
Above is a chart of the January 2007 natural gas futures. This daily chart shows the dramatic impact the record heat wave is having on natural gas supplies. As the price has rocketed to $11.06, it has already taken out the highs predicted by my partner, Roger Wiegand, earlier in the year. Roger points to the article in the Wall Street Journal noted above and also to the powerful move in the charts as reasons for believing we are likely to see natural gas rise much further. What Roger points out is that a move of the price above the center red Bollinger Line is bullish. A price below is bearish. In both the September and January charts, we see natural gas prices not only above the red line but also above the upper Bollinger Band limits depicted by the green line. Needless to say, this is an extremely bullish picture.
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