Two Sides to the Natural Gas Coin

Two more hurricanes, a price that's economic and down 40% in 8 weeks, a fuel that homeowners can switch to -- is natural gas capable of collapsing even more than it has?

This one's rough. Commodities are chart-oriented. The chart for natural is a disaster, one the worst I have ever seen. This commodity has $5 all over it. It's obvious that there is no place to put the stuff, and we are pumping like mad. It's possible that there isn't enough switching capacity to make a difference.

But it is also obvious that we are going to have success in making natural gas an auto fuel of the future, especially at these prices, which make the fuel smack at $2-a-gallon equivalent without any subsidies.

This price shouldn't be a hard call. You get it down here, and you know that there will not be as much pumped; these companies can shut in delivery. Plus, we do not have a big decline in the futures price, nowhere near the current cash price.

At the same time, the group's become as toxic as any I have ever seen.

I think you take a chance ahead of two hurricane forecasts and the elimination of the Ospraie overhang. If you don't, you must believe that natural gas can trade at the most outrageous discount in history, as it is if you use the old 6-to-1 ratio -- it's otherwise projecting $42 oil from the current $108! Even if you use what the bears on this site have been saying, a new 10-to-1 ratio because of the inability to switch, you have oil at $70.

Can oil go to $70? Yes, if we can find more. Yes, if we weren't running out. Yes, if driving doesn't come back at $3 a gallon, where gasoline goes if oil cracks $100. Yes, if China collapses.

Otherwise, this weakness right here is a buy, not a sell.

The disconnect on the drilling side is even more weird. This morning, Transocean (RIG - commentary - Cramer's Take) is talking about a 99% increase in daily lease rates, making it inconceivable that anyone would cancel orders to National Oilwell Varco (NOV - commentary - Cramer's Take), particularly because this morning Brazil announced that there might be a fourfold increase in natural gas in the Jubarte field. Brazil simply can't take advantage of that without many more rigs, and the backlog is already astronomical for NOV.

But the stock goes down relentlessly as if it is a coal service company, a la Joy Global (JOYG - commentary - Cramer's Take).

That's nonsense, but again, the chart is terrible, and back in March the stock was at $52. Can it repeat that price? Anything's possible, but the backlog's firmer, the pricing better.

But nobody cares.

Just one ugly market.

At the time of publication, Cramer was long National Oilwell Varco.

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