The $64,000 question for natural gas E&P stock investors is the point at which the E&P companies "call it a day" and stop drilling, doing their part to help bridge the gap between supply and demand.
For this read, the upcoming fourth-quarter earnings commentary from E&P companies will be key. Natural gas E&P CEOs have recently commented that at sub-$4 gas they would significantly lower gas-related spending. At sub-$3 gas, where the market is now, it would definitely have these companies re-thinking gas capex. That would bring down spending but also, as a result, bring down cash flow. It may be a wash in terms of any given stock, with the reduction in spending offsetting the market disappointment of less cash flow -- at least for less-indebted companies. However, even with the production shutdowns, it's not likely to do enough in the short-term to bail out natural gas spot market pricing.
"Supply in the end has to scale back. There has to be a cut back in production to really show improvement in price, but I don't know how to answer the question of when it turns, when companies take down production and spending enough," said McNamara.
Indeed, natural gas has become known by market professionals as "the widow maker" for good reason.-- Written by Eric Rosenbaum from New York.
Eric Rosenbaum. >To follow the writer on Twitter, go to Eric Rosenbaum.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV