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Natural gas has collapsed for the past four years and has been on a gradual decline for almost a decade. Prices topped near $16 in 2005 and came back to $13.46 in 2008. But since that high, natural gas has declined 85% to $2 last week.
So did natural gas just bottom?
Boone Pickens and many other billionaire investors back natural gas. But the U.S. continues to focus on foreign crude oil for energy production. And demand for alternatives like natural gas hasn't increased.
It's basic economic theory – if demand doesn't increase, neither will the price.
The lack of demand was also accompanied by an increase in supply, which was a double whammy on the price and the main reason why natural gas prices are near lows not seen in the commodity futures market since 1999.
The increase in supply was directly tied to major gas discoveries in the Barnett Shale, Bakken Shale and Marcellus Shale formations. New techniques, such as fracking, have also increased natural gas drilling efficiency.
With stagnant demand and increased supply, the price of natural gas has had nowhere else to go but down. And ETFs like iPath Dow Jones UBS Natural Gas Total Return ETN (NYSE: GAZ) and United States Natural Gas Fund (NYSE: UNG) have fallen by more than 96% since the 2008 high.
But has natural gas finally reached a price bottom? I think so. This video analyzes the move of natural gas over the past few years and also shows where I think prices are headed.
While the video doesn't mention any specific companies, natural gas stocks should rise alongside natural gas prices, especially those that remain net income positive when prices are below $3. A few stocks to consider are: Rosetta Resources (Nasdaq: ROSE), Energy XXI Limited (Nasdaq: EXXI), Celtic Exploration (TSE: CLT), Kodiak Oil and Gas (NYSE: KOG), Legacy Oil and Gas (TSE: LEG), Bill Barrett (NYSE: BBG), Northern Oil and Gas (AMEX: NOG), and Chesapeake Energy (NYSE: CHK).
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Jason Cimpl
Editor, TradeMaster Daily Stock Alerts
Washington, DC
Editor's Note: Jason's trading service, TradeMaster Daily Stock Alerts, just had another banner year, but recent optimism has him leaning bearish. Click here to learn more.