Morgan Stanley Recommends Selling March 2011 U.S. Gas
By Dinakar Sethuraman - Oct 11, 2010 1:10 PM GMT+0200
U.S. natural gas futures will average $4 per million British thermal units next year and investors should sell March 2011 contracts on stockpile gains, Morgan Stanley said today in an e-mailed note.
Investors can exit “short” positions in the March U.S. natural gas futures, currently trading in New York at $4.235 per million Btu, at $3.50 and should have a stop loss at $4.60,
Hussein Allidina, an analyst, said in the note. The U.S. natural gas market may stay “fundamentally oversupplied” through 2011, he said.
“We see gas production maintaining its upward path through at least the first quarter of 2011, and possibly for longer,” Allidina said. “Higher production will translate into increased inventory injections and lower withdrawals.”
Gas for November delivery fell 1.3 percent to $3.603 per million Btu on the New York Mercantile Exchange at 7:03 p.m. Singapore time. Morgan Stanley estimated in a note in August 2009 that gas prices will average $8 next year on expectations of a recovery in the U.S. economy.
“While utility buying early in the heating season may support near-dated contracts, we believe that underlying bearish fundamentals will ultimately pressure prices lower,” Allidina said.
An increase in rig activity is bolstering production in spite of “weak” natural gas prices, Morgan Stanley said. The bank has modeled end-March 2011 storage at 1.9 trillion cubic feet, it said.