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Published: September 26, 2009
The past 18 months have taken a serious toll on
normal supply and demand in many industries. But no industry was
impacted more than energy...
Oil peaked at $147 per barrel in July 2008 -- right before the
house of cards came crashing down on the global economy. Once
banks started to fail and credit dried up, other businesses
slowed production and laid off workers. This created a massive
trickle effect on the overall economy.
Big corporations and individual consumers alike were using less
energy. That meant the prices of every energy-related commodity
plummeted.
This spring, things started to turn around... The unemployment
rate quit falling at such a rapid rate. Inventories were too low
in many industries, creating a ramp up in production again.
Energy prices climbed...
Since the start of this year, the price of crude oil has nearly
doubled. In just the last six months, heating oil jumped as much
as +90%. These two commodities are still cheap as far as we can
tell. But they aren't the real story...
Two other commodities are still low, but won't be for long...
Coal and Natural Gas Are Commodity Buddies
Back in June, Greg Guenthner told you about coal's recent
history. Coal, being the most widely used fossil fuel in the
U.S., took an extra-hard hit during the past several months.
It's down nearly -70% and hasn't recovered in the slightest.
Demand will flood back into the system. In fact, that's already
happening. We have no doubt that the coal play we let our
Penny Stock Fortunes readers in on is the best way to take
advantage of the coming coal boom. But there's another energy
commodity about to shoot even higher, even faster...
Natural gas prices have utterly collapsed. After trading above
$13 in June 2008, natural gas fell the whole way down to $2.70
today. Its decline happened as gradually as can be. Most of the
financial world has been trying to time the bottom for months.
But it keeps falling.
We don't know if this is the bottom, but it can't be far from
it. It doesn't matter to us even if it's not. You see, we found
the best natural gas seasonal laborer in the world, and we can
just wait it out... no matter how long it takes.
Before we get into any specific natural gas play, we need to
know how big natural gas's recovery will be...
Why We'll See Natural Gas +209% Higher By Year-End
Natural gas and coal go hand in hand. They are oftentimes found
together in the same place. Natural gas hides beneath and
between coal beds. It's not uncommon for a coal company to come
in and mine the same site an oil and natural gas driller just
left.
When one of these two is no longer in demand, it usually spells
trouble for the other. That's one of the main reasons natural
gas has taken such a hit. But just as they fall together, they
rise together.
We already laid out the reason coal will see a price spike in
coming months and years. Natural gas is just as lucrative, if
not more...
Natural gas demand is continuing
to increase around the world at an
unprecedented pace. Many nations are
starting to choose natural gas over
traditional coal and oil in power
plants. It burns about 29% cleaner
than petroleum and 44% cleaner than
coal.
And because of its recent price
collapse, it's now the cheapest
choice for customers. Why pay more
for coal or oil when you can get
natural gas for $2.50 per thousand
cubic feet?
The supply side of the coin is even
more compelling...
The U.S. imports around 17% of its
natural gas -- almost all of which
comes from Canada. Unfortunately,
Canada's natural gas reserves are
drying up. Daily Canadian natural
gas production peaked in 2001. We're
already back down to 1995 production
levels, and falling.
Natural gas production here in the
U.S. has also fallen off a cliff.
Most drillers can't drill for a
profit at these prices. So they
aren't. We have almost no production
right now. We'll eventually burn
through stored natural gas reserves.
When they go too low, it will spur a
panic.
This panic will be enormous. Natural
gas is simply too cheap. It hasn't
been this cheap for decades. The
average oil-to-natural gas price
ratio is about 9.3. Now it's at
about 29.
It wouldn't take much for prices to
shoot upward from here. To reach the
20-year average natural gas-to-oil
ratio, natural gas prices would have to climb
209%.
That doesn't take into account the
future boom in demand. It won't take
long for it to correct
itself...certainly before the end of
this year.
This panic is inevitable, and there
are a number of penny stock plays
that could take advantage of it...
Union Drilling (NASDAQ: UDRL)
and Pioneer Drilling (AMEX: PDC)
are two that could be worth looking
at right now.
-- Jim Nelson
Manging
Editor
Penny Sleuth
This article originally appeared in
Penny Sleuth. |
