• 1 hour Gazprom Neft Unhappy With OPEC-Russia Production Cut Deal
  • 3 hours Disputed Venezuelan Vote Could Lead To More Sanctions, Clashes
  • 5 hours EU Urges U.S. Congress To Protect Iran Nuclear Deal
  • 7 hours Oil Rig Explosion In Louisiana Leaves 7 Injured, 1 Still Missing
  • 8 hours Aramco Says No Plans To Shelve IPO
  • 3 days Trump Passes Iran Nuclear Deal Back to Congress
  • 3 days Texas Shutters More Coal-Fired Plants
  • 3 days Oil Trading Firm Expects Unprecedented U.S. Crude Exports
  • 3 days UK’s FCA Met With Aramco Prior To Proposing Listing Rule Change
  • 3 days Chevron Quits Australian Deepwater Oil Exploration
  • 4 days Europe Braces For End Of Iran Nuclear Deal
  • 4 days Renewable Energy Startup Powering Native American Protest Camp
  • 4 days Husky Energy Set To Restart Pipeline
  • 4 days Russia, Morocco Sign String Of Energy And Military Deals
  • 4 days Norway Looks To Cut Some Of Its Generous Tax Breaks For EVs
  • 4 days China Set To Continue Crude Oil Buying Spree, IEA Says
  • 4 days India Needs Help To Boost Oil Production
  • 4 days Shell Buys One Of Europe’s Largest EV Charging Networks
  • 4 days Oil Throwback: BP Is Bringing Back The Amoco Brand
  • 4 days Libyan Oil Output Covers 25% Of 2017 Budget Needs
  • 4 days District Judge Rules Dakota Access Can Continue Operating
  • 5 days Surprise Oil Inventory Build Shocks Markets
  • 5 days France’s Biggest Listed Bank To Stop Funding Shale, Oil Sands Projects
  • 5 days Syria’s Kurds Aim To Control Oil-Rich Areas
  • 5 days Chinese Teapots Create $5B JV To Compete With State Firms
  • 5 days Oil M&A Deals Set To Rise
  • 5 days South Sudan Tightens Oil Industry Security
  • 6 days Over 1 Million Bpd Remain Offline In Gulf Of Mexico
  • 6 days Turkmenistan To Spend $93-Billion On Oil And Gas Sector
  • 6 days Indian Hydrocarbon Projects Get $300 Billion Boost Over 10 Years
  • 6 days Record U.S. Crude Exports Squeeze North Sea Oil
  • 6 days Iraq Aims To Reopen Kirkuk-Turkey Oil Pipeline Bypassing Kurdistan
  • 6 days Supply Crunch To Lead To Oil Price Spike By 2020s, Expert Says
  • 6 days Saudi Arabia Ups November Oil Exports To 7-Million Bpd
  • 6 days Niger Delta State Looks To Break Free From Oil
  • 7 days Brazilian Conglomerate To Expand Into Renewables
  • 7 days Kurdish Independence Could Spark Civil War
  • 7 days Chevron, Total Waiting In The Wings As Shell Mulls Majnoon Exit
  • 7 days The Capital Of Coal Is Looking For Other Options
  • 7 days China’s Sinopec Puts $1B Argentina Oil Assets Up For Sale
Alt Text

Will Low Oil Prices End Saudi Arabia’s Gas Subsidies?

Feeling the fiscal pressure from…

Alt Text

Hurricane Irma’s Wrath Weighs On Natural Gas

Hurricane Irma has left some…

Alt Text

What Is Behind Surging Gas Prices?

As gas stations raise prices…

This Could Be A Good Moment To Buy Natural Gas Stocks

This Could Be A Good Moment To Buy Natural Gas Stocks

In the last month or so a kind of stealth move has been taking place in an unlikely energy commodity. 

Natural gas, the poster child for overproduction last year as energy prices collapsed seems to have found a bottom. Indeed, if price action is to be believed it is even possible that we are witnessing the beginning of a significant rally in the commodity. Of most interest to investors though is that as gas begins to edge upwards, stocks in the industry are still under pressure.

There is a perfectly logical explanation for that, and it is a product of a basic disconnect in the stock market that often provides opportunities for energy investors. Even though the stock market has a function as a forward discounting mechanism, there is still a tendency for traders to look backwards at times and react to earnings numbers that are, by their nature, a record of what has already happened.
Commodity futures, on the other hand, are, by definition, about the future. Thus, even as the futures market is indicating cautious optimism about natural gas prices, stocks in the industry are being depressed by poor results from the first half of the year.
That optimism in the commodity market is based on the fact that a solid base around the $2.60 level has formed. Related: Current Oil Price Slump Far From Over

If we shorten the timeframe of the chart and look more closely at the one month action an even more positive pattern of gradually higher lows becomes clear. Related: Oil Faces Steep Downside Risk From China’s Stock Market


This would suggest that buyers have the upper hand, and that a gradual return to levels approaching $3 and even a break above that psychologically important level is imminent. If that does occur, then obviously it would give a boost to the prospects of E&P companies with a focus on natural gas, such as Cheniere Energy (LNG) and Range Resources (RRC). As you can see though, neither stock is reflecting that, but instead they are continuing to be weighed down by recent results. Related: EIA Data Still Doesn’t Add Up


(Click to enlarge)

As a result, both LNG and RRC are close enough to support levels to offer a reasonable exit level if you were to buy here. In the case of LNG a stop at around the $60 level would limit potential losses to 11 or 12 percent, while a stop just below RRC’s 52 week low of $43.88 would represent a cut for around a 9 percent loss if things didn’t pan out. With both stocks offering at least a 20 percent upside if natural gas were to re-establish above the $3 level that makes for a decent risk/reward ratio.

It should be noted that this is a sideways play on rising natural gas prices. Some may prefer the pure play of buying futures which also looks attractive at these levels. On balance, however, given the fact that news of a historical nature has kept LNG and RRC from reacting to the gradual edging up in natural gas, the stocks offer a better play for most investors.

By Martin Tillier Of Oilprice.com

More Top Reads From Oilprice.com:




Back to homepage


Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News