Natural Gas Prices Near a Bottom?

Today I established a couple positions to increase my exposure to the natural gas market. The natural gas market has sold off significantly, dropping from over $5 MMBtu to under $3 in the past year, recently hitting the lowest level in over ten years of $2.32. Over production has been the primary cause of the price decline, but a warmer than usual winter has also contributed to lower demand during the typically seasonably stronger demand winter months.

Numerous producers have started to cut production, including Chesapeake Energy Corp., ConocoPhilips and Occidental Petroleum. While more production cuts are likely needed to balance supply and demand, I believe the price of natural gas likely begins to stabilize and may even bounce back above the $5 mark during the next year. The reason for my optimism includes the production cuts, the potential for either a colder weather pattern in the next month or a hot summer, and the likely increasing use of natural gas at lower price points. At under $3 I believe natural gas becomes a much more attractive fuel alternative for companies able to switch between natural gas and higher priced coal. Longer-term, the low natural gas prices should attract new uses for the fuel, including transportation, heating, electricity and industrial production.

So I have established the following positions:
~3% position in Penn Virginia Corp. Sr. 7.25% Notes 4/15/2019 (CUSIP 707882AC0) - This company is having difficulties and its stock price (Ticker PVA - $4.76) has dropped significantly. Lower natural gas prices have obviously not helped but the company has been investing in oil production, increasing revenue from oil relative to gas. Management does not instill confidence with a lawsuit outstanding for over-paying the previous CEO and CFO. In addition, the company has slipped a bit on production relative to guidance, calling into question execution. That said, management is out talking to investors, which is usually a good sign of their confidence about the future of the business. The company does not have any significant debt due until 2016 and has adequate liquidity. While the stock may ultimately prove a better bet, I decided to establish a position in the senior debt at a yield north of 9%, a more comfortable risk/ reward balance in my view.

~2% position in ProShares Natural Gas ETF (Ticker BOIL) - This is 2x leveraged ETF that tries to track movements in the natural gas futures markets through derivatives. This position is purely focused on the price on the natural gas. Because it is leveraged I have purposely kept the position relatively small.

Also, yesterday I reduced my position in silver slightly after a significant increase in silver prices due to the remarks by the Federal Reserve yesterday. Basically, the Fed stated its intent to keep interest rates low for multiple years and has not ruled out additional quantitative easing, both reducing the value of the dollar and increasing the value of precious metals. I plan to put money back into silver if the price retreats again.