Resource expert: There’s still huge upside in this ‘hated’ commodity
From Matt Badiali, Editor, Stansberry Resource Report:
One of the most hated products in the oil and gas sector has jumped in recent months.
It’s one of the sneakiest bull markets I’ve ever seen. We’re coming out of a massive glut and yet the price soared this year.
Best of all, few investors even realize what’s going on with this product today…
You may have figured it out by now… I’m talking about natural gas. We saw this one coming. Back in June, I predicted that this would happen.
Natural gas production in the U.S. hit an all-time high in 2001. But most of the giant reservoirs were gone. Gas exploration hit a standstill… and production began to decline in the early 2000s. As production continued to decrease, the price of natural gas soared to nearly $14 per thousand cubic feet (Mcf) by 2008.
The “shale revolution” once again caused natural gas production to increase beginning in 2008. This is when the development of drilling technologies started to allow us to extract far more oil and gas directly from shale.
As production soared due to the shale boom, the price of natural gas plummeted.
It bottomed around $1.49 per Mcf this past March. Then, the price soared 100% to just less than $3 per Mcf by early July. It has traded between $2.55 and $3 per Mcf since then.
So what caused the price of natural gas to jump substantially in recent months?
The ongoing crisis in the oil industry…
Here’s what I wrote in June:
Oil prices fell, killing the industry. Nearly 70 companies have gone bankrupt since the start of 2015. Billions of investment dollars evaporated as these stocks went to zero. So companies stopped drilling wells… And U.S. production is falling.
Oil production continued to fall, and it took natural gas production with it… because natural gas is a byproduct of the oil production in the country. Below, you can see the past decade of natural gas production…
You’ll notice that natural gas production is down almost 5% since February. That’s the largest percentage decline since it fell nearly 8% from January 2012 to August 2012.
At that time, the price of natural gas doubled. The decline in natural gas production could go much deeper this year as oil production continues to fall. Fewer active oil wells in the country today mean less natural gas production. Because of that, natural gas prices could rise even further today.
Back in June, I recommended four companies to take advantage of the trend – Range Resources (RRC), San Juan Basin Royalty Trust (SJT), Cabot Oil & Gas (COG), and EQT (EQT). Here’s how they’ve performed since then…
As you can see, even though natural gas prices have climbed 13% since June, all four companies are down. That’s because they previously had made huge moves off their January lows, which meant the increase in the price of natural gas was already factored into the stocks.
I still believe these four companies are the best way to put your money to work in natural gas. And you can get even better prices today than you could three months ago.