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Contributors Natural Gas Mystifies the Talking Heads
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Remember back in April when people on TV were saying that natural gas would remain at $1-$2 because we had such a glut of supply out there?

It sounds right … until you really think about it. The first question I asked myself when I heard that was, “what does it take for a natural gas company to break even?”

As it turns out, it costs them $3 to $9 to pull the gas out of the ground … with the average being around $5.

Well, these companies aren’t charities. They’re for-profit businesses. That’s why I knew they’d do everything in their power to get the price of natural gas up.

When the sentiment for natural gas couldn’t have been worse (which is when it was trading in the $1 range), I said that it couldn’t stay there. Why? For the simple reason that these natural gas companies would lose so much money for so long that they’d all end up going out of business. Then no one would be able to get a hold of natural gas … and I knew that wasn’t going to happen. 

If you think the Encanas and Devon Energies of the world will stand for that, you’ve got another thing coming.

They’ve got to have natural gas above $3 just to begin the process of getting part of the industry above breakeven.

So what did they do? They shut down the rigs. The rig count has been going lower and lower, and that’s been sending prices higher.

But there’s another reason I knew that nat-gas was going to head higher. It formed an inverse head and shoulders pattern on the chart. Once it overcame its black neckline, I knew it would head to its minimum price target of $3.50. It just made it there. Check it out below.

Nat-Gas Has Been Trending Higher Since April

See larger image

While we could see a pullback soon because natural gas has gone so far, so fast … ultimately, it has to make it to the $5 range so that the average nat-gas producer is past its breakeven point.

Have a nice day!

Sean Hyman
Editor, Commodity Trend Alert

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