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Occasionally, I run across something so good that I feel compelled to share it with you. Such is the case this month. I stumbled across it on the Web while looking for data on future prices for this month’s issue. What follows was written by Harry Chernoff.
Let’s start with the bears’ punch line: As of mid-June, gas in storage is roughly 450 Bcf (or 22%) above the year-ago level and roughly 650 Bcf (or 35%) above the five-year average. Without a major hurricane, gas prices will decline significantly in coming months and regional discounts will widen, especially in the Rocky Mountains.
The bulls’ case. First, at $70/bbl, crude is trading at more than 10:1 versus the gas price. The long-run average is closer to 6:1. More importantly, natural gas at $6.50/MMBtu (Henry Hub) is trading about 10% below 3%-sulfur residual fuel on a Btu basis. This is unusual since residual fuel typically sets the floor price for gas. Fuel switching should add a couple of Bcfd to load.
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