Global Outlook

Natural Gas

Contributed by eResearch

Natural gas prices have remained fairly stable, buoyed by record summer temperatures and the continuing conversion of electricity plants from coal to gas. This strong demand has shrunk bloated supply levels, although they still remain far above last year’s storage levels. As a result, natural gas prices are once again above the US$3.00/mmbtu level. They were there briefly in the latter half of July based on hurricane fears.

The better recent performance by gas versus oil shows clearly in Chart 3.

Over the last five years, the price of natural gas has averaged US$5.00/mmbtu. The average ratio of oil to gas in this time period is 20.29x. So, we are well below the longer-term price point and well above the traditional oil/gas price relationship.

If it has not already, the outlook for natural gas will soon shift from one weather experience to another: hurricanes to winter cold. A second global very mild winter like last year would be devastating for natural gas prices as there would be little draw-down from existing high storage levels.

Thus, as always, it is essential to keep a close watch on and account of weather patterns for a clue to where natural gas prices are likely headed.

LAST WEEK: We featured Uranium in our Topic last week. Since then, a major Canadian brokerage firm put out a Sell recommendation on Cameco Corporation, knocking the stuffing out of the stock and providing an opportunity for savvy longer-term investors to pick up shares of one of the world’s leading uranium companies at prices not seen since last December.