Natural Gas Stocks Starting to Feel a Double Pinch From Low Prices, High Seasonal Inventory

Did you ever think that your local weatherman could be a good stock picker? Believe it or not, it is true. Tracking weather patterns can also be good for tracking investments.

For example, the latest weather developments come out of the National Oceanic and Atmospheric Administration's Climate Prediction Center in Camp Springs, Md. where scientists say that weak El Nino conditions have developed in the Pacific Ocean. Because of those conditions, scientists believe that this winter will likely be much warmer, and also at the same time, slow down the Atlantic hurricane season. So the question that should be asked is, what does this mean for your portfolio?

Most likely bearing the brunt of El Nino is the natural gas sector because natural gas prices will certainly be negatively affected. The price of the October natural gas contract has already started to reflect this sentiment, tumbling to under $5.00 per thousand cubic feet -- the lowest price for the near-month contract since April 2004. Flashing back, it has been quite the turnaround for the natural gas sector. Last year, prices were around $12 US per thousand cubic feet in the aftermaths of Hurricane Katrina’s devastating effects to drilling rigs in the Gulf of Mexico.

However, the double whammy now is that El Nino will negatively effect the Atlantic hurricane season and winter temperatures across the country, two variables that could have caused a spike in natural gas prices. Also not helping is the fact that the Energy Department report showed that U.S. gas inventories rose 108 billion cubic feet, reaching 3.084 trillion cubic feet last, well above normal inventory levels for this time of year.

While this is great news for consumers, who should expect to pay much lower during the winter heating season, it will not be at all good for natural gas stocks. Stocks that will be under pressure include, NGAS Resources Inc. (NGAS), Cabot Oil & Gas Corp. (COG), Chevron Corp. (CVX), Exxon Mobil Corp. (XOM) and Global Industries Ltd. (GLBL). On the weather news, market watchers should watch to see if investors begin rotating money out of the sector in anticipation of even lower natural gas prices in the future.

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