Monday, July 20, 2009

Halliburton CEO: Natural Gas Prices to Remain Weak

I'm not going to cover the full details of the Halliburton quarter (earnings lower, but beat estimates...we know the deal), but it was interesting that the CEO went out of his way to speak about natural gas prices. (data via Reuters).

Halliburton Co, the world's second-largest oilfield services company, posted a better-than-expected quarterly profit on Monday, boosting its shares, but it warned that North American natural gas markets were likely to stay weak through the end of the year.

Natural gas prices in the United States have tumbled to less than half of year-ago levels, and high inventories were expected to curb spending by energy producers on new wells.

"Due to the continued weakness in natural gas demand, reflected in the high injection rates for working gas storage, we believe it is unlikely that there will be a meaningful recovery in natural gas prices and, consequently, drilling activity for the remainder of the year," Dave Lesar, chairman and chief executive officer, said in a statement.

Now obviously he's pretty plugged into the situation for natural gas. I'm still holding my position for a few reasons. If you look at the upside vs. downside risk for natural gas (upside risk factors include an economic recovery, strong storm season, massive production shut off) (downside risk of economy weakening decreasing demand further), I still think the upside is stronger. If natural gas prices had already priced in these upside factors, I would feel differently, but prices are still depressed.

His quote that we won't see an meaningful recovery in prices and consequently drilling activity this year is interesting. Wouldn't that then mean that depressed drilling activity would then consequently help push prices back higher???

Disclosure: Long UNG

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