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Natural Gas Prices Could Be Poised To Break Out

Natural gas

As I have said here many times before, institutional traders are like sports talk radio host in that they consistently overreact to every bit of news. Having been there, I know why. When you are 100% focused on something all day every day, any headline that directly affects that thing seems to have huge significance. So, when I think I see an opportunity based on a market underreaction to a news story, I proceed with care. Given the inherent and understandable tendency of traders to overreact in the short term it is far more likely that it is I who have the impact of the news wrong when that happens than that everybody else has missed something.

Try as I might, though, I just cannot see what happened in natural gas this week as anything but an underreaction to what should have been a big story. On Wednesday morning, U.S. President, Joe Biden and UK Prime Minister, Rishi Sunak, announced a deal to expend US exports of natural gas to the UK. Natty reacted by reversing what was a strong downtrend, but when you think of the implications of this deal, the retracement looks like an underreaction and is probably just the beginning of a sizeable upward move.

The deal itself was no great shakes and was in some ways more of a political statement than a commercial agreement, but its implications go far beyond that. It consisted of setting a target for US exports of LNG to the UK next year of 9-10 billion cubic meters. That sounds impressive until you realize that so…





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