Thursday, July 3, 2008

The Best Cure for High Gas Prices

One of the most frequent internet searches that land people from all over the world here at the CARE Blog includes the words “gas prices.” Everyone wants to understand what is going on with the escalating costs at the pump. If you read through the previous postings, you’ll see that they address the issues from a production perspective. When this short piece landed in CARE’s in box—saying that prices would be going down, it caught our attention. This is from an energy investment newsletter put out by ABQ Energy Group, Ltd. The president, Scott Kominiak, is a CARE Member. Coming from a background of energy trading and risk management, we believe you’ll be interested in his comments.

It is getting tougher and tougher to be an oil and gas producer. I even catch flack when I tell people what I do and I don’t even own the stuff! However, remember that the best cure for high prices is high prices and we are likely headed for some sort of corrective action that should give us all a break from the dirty looks.

On that note, pay attention on the way down and listen for commentary about the “evil speculators” and how they are driving prices lower by exiting their positions. I’m thinking that I already know how much we will hear.

We have not yet reached our bull flag target on CL of $155, but we are getting close. The sustainability of that rally will likely impact the depth of any NG corrections. We have begun buying out of the money puts under the NG market as a hedge. Implied volatility is relatively low which make these contracts a relatively cheap insurance policy.

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