Monday, November 22, 2010

Phil Flynn: Babys It's Cold Outside

It may not be cold yet but the first real blast of winter is coming. How do I know that? I am looking at natural gas prices. Despite record supplies, natural gas has been keeping up as Middle America scrambles through our closets to find gloves and ear muffs. Natural gas prices are rebounding from its sharp selloff now testing the high for the month in anticipations of frosty future. Does this signal that the bottom in natural gas has arrived or is this just a great selling opportunity?

In a normal year in gas you might assume that prices would go higher but since the onslaught of new unconventional gas production from shale, now you cannot be too sure. You see according to the Energy Information Agency natural gas proven reserves (those volumes of oil and natural gas that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions) rose enough not only to replace production, but also to grow by almost 3 percent over 2007.

In contrast, the EIA says that even though discoveries of crude oil rose for the third year in a row, proved reserves of crude oil fell by more than 10 percent. Under Securities and Exchange Commission (SEC) rules for determining reserves that have been in effect since 1982, operators assessed their 2008 reserves based on what they could produce with reasonable certainty at the market price on the last day of the year......Read the entire article.

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