gas commentary, page-6

Hi 582,

thanks for the chart. Henry Hubb spot?

The US EIA gas site -

http://www.eia.doe.gov/oil_gas/natural_gas/info_glance/natural_gas.html

I seem to think we have probably seen the low. From here though it may be range bound sideways putting some time behind it - (perhaps the immediate support/res lines on your chart).

Current US inventories are high but in favour of upside argument,IMO will be this US winter and the fact that below USD$4.50ish MMBtu many US producers are marginal. Shutting in uneconomic wells may well solve the over supply / demand imbalance curently affecting price - amongst other things (like industry/power generating switching to cheaper gas and the climate debate in the longer term).

June 12 (Bloomberg) -- U.S. onshore marginal oil and natural-gas producers are still suffering after prices fell below their break-even level, Sanford C. Bernstein & Co. said.

Between November and May, oil averaged $48 a barrel, around break-even points for marginal producers, while gas prices are still too low to cover outlays, Bernstein said in a report dated today.

“This means that declines in onshore U.S. production from shut-ins and accelerated decline rates will continue for some time, despite the oil price having recovered,” Bernstein analyst Neil McMahon wrote in the report.

A survey of around 100 exploration and production companies in Texas, Oklahoma, Kansas and Arkansas for Oklahoma’s Marginal Well Commission found that the average break-even price was $44.73 a barrel for oil.

With oil prices around $45, that suggests around half of the marginal producers surveyed would either break even or lose money, McMahon said. The data indicate that the mean break-even price for the Mid-Continent marginal gas producers surveyed was $4.66 per 1,000 cubic feet, well above current levels.

U.S. government proposals to repeal tax breaks to run marginal wells could further threaten producers, Bernstein said, increasing the risk that more wells will be shut in or plugged.