Friday, September 18, 2009

UNG, Natural Gas Inventories: Overflow in 6 Weeks

Natural gas inventories were reported Thursday, showing an injection of 66 Bcf. This brings the total in storage to 3,458Bcf, which is 16.7% higher than in 2008, and 16.4% higher than the 5-year average. At this current rate, the projection is for storage overflow in about 6 weeks. However, we are in shoulder season, where no gas is used for heating nor cooling, and we do not believe for a minute that industrial use is increasing, so larger injections in coming weeks are quite possible. This will shorten the time to overflow.

Inventories continue at stratospheric levels. What is worse is that the rate of increase is not declining, on the contrary. The following chart shows the diference between the current storage curve and the bottom of the 5-year average (blue arrows), difference with last year's curve (red arrows), and the difference with the top of the 5-year range. These differences are getting larger. That is key.

(kindly click to enlarge chart)

Please view or several posts on UNG straddles to see several potential ways to profit from this and how well they have done.

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