• 4 minutes 5 Tweets That Change The World?
  • 7 minutes Trump Tariffs NOT China's Biggest concern. Chinese Shadow Banking Bigger. What is Shadow Banking You Ask ?
  • 11 minutes Wonders of US Shale: US Shale Benefits: The U.S. leads global petroleum and natural gas production with record growth in 2018
  • 15 minutes Glory to Hong Kong
  • 6 hours PETROLEUM for humanity 
  • 11 hours National Geographic Warns Billions Face Shortages Of Food And Clean Water Over Next 30 Years
  • 17 mins China's Blueprint For Global Power
  • 9 hours Trump will capitulate on the trade war
  • 29 mins How The US Quietly Lost The 1st Amendment
  • 8 mins HK. Out. Now.
  • 13 hours Crazy Stories From Round The World
  • 18 hours Communist China Following Nazi Germany's Playbook
  • 21 hours Hong Kong Protests Still Going Despite Their ''Love'' Of China? Weird ...
  • 13 hours Strategic beauty of attack on Iranian tanker
  • 17 hours Scientists Endorse Mass Civil Disobedience To Force Climate Action
  • 11 hours DING DING DING DING DING DING DING DING DING DING DING DING DING DING DING DING DING
  • 23 hours USA pulls troops from Syria
  • 19 hours KURDS LEFT HIGH AND DRY TO DIE?
Martin Tillier

Martin Tillier

More Info

Premium Content

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:




Download The Free Oilprice App Today

Back to homepage



Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News
Download on the App Store Get it on Google Play