This morning, after the DOE announced that the inventory for natural gas was well below market expectations, I expanded my position in EnCana Corporation (Ticker ECA) and established a position in Chesapeake Energy Corporation (Ticker CHK). At the end of the day I have a combined ~5% position in these natural gas-related companies. I expect these positions to remain in my IRA for at least one year, unless natural gas prices continue to fall or the stock prices appreciate back to near 52-week highs. I may establish additional positions related to natural gas that could increase my exposure to 10-20% of my IRA.
This morning the US Energy Department announced that natural gas inventory increased by 8 billion cubic feet, lower than the anticipated 19-25 Bcf. While inventory remains well above historical averages, my take on the data is that the recent declines in rig count is (1) slowing the growth of inventory, and (2) the market estimates likely are too high for future inventory increases. At this time of year the inventory of natural gas typically increases due to milder weather, but with the glut of inventory many producers have been shutting down rigs, as highlighted in my previous article.
Natural gas prices remained weak during the day. However, I believe the lower than expected inventory build combined with rig closures likely signals more balance between supply and demand and could even lead to a higher rate of draw down of inventory during the summer if the weather is unseasonably hot. All that said, natural gas prices may not appreciate materially until next year, as highlighted by Goldman Sachs today.
Under my Sagflation theme I expect more volatility in prices, thus I would not be surprised if natural gas prices do not remain around $2 for long.
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