Hedge Funds Slash Gas Holdings

Jim Brown
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In August 2009 gas prices fell -19% because of a calmer than normal hurricane season. In 2010 NOAA reduced its storm estimate in early August from a high activity forecast of 20 named storms to a moderate activity season of only 14 named storms. This prompted funds to slash futures positions.

When the changes in positions were reported on Monday for the second quarter there were a lot of funds that had lightened up on gas stocks and natural gas futures. With no storms in sight other than the lingering depression called storm five there are analysts warning of another implosion in gas prices like we saw in August 2009.

Natural gas futures fell sharply on Monday on the news to trade under $4.20 intraday. Gas prices have already declined -12% this month. Analysts are warning that prices could go under $4 again. In September 2009 gas prices fell to $2.508 and the lowest price in seven years.

Other analysts disagree with the prediction saying the busiest six weeks in the storm season begins on August 18th and it is still possible to see 4-6 storms in that period with several in the higher categories.

The impact of storms is not as large as in the past. In 2005 the Gulf of Mexico produced 17% of our natural gas. That is down to only 10% today because of the larger volumes of shale gas being produced. Even if we do have several major storms the impact to gulf production is normally about 20%. A 20% drop in 10% of our production is only 2% total and should not impact prices significantly.

Hedge funds have to disclose positions 45 days after the quarter ends. The worries over a gas glut did not seem to impact Boone Pickens. He loaded up on land based gas drillers during the second quarter. BP Capital added 190,454 shares of Devon (DVN), 599,788 shares of Quicksilver Resources (KWK) and 189,507 shares each of Encana (ECA) and Southwestern Energy (SWN). BP Capital also bought 94,753 shares of Chevron (CVX) and 65,380 shares of Massey Energy (MEE). Pickens cut his holdings of Transocean from $30 million in Q1 to $9.3 million at the end of Q2. Of course some of that is reflected in the decline in the values of (RIG) shares not specifically that he sold $21 million. Also, the disaster began at the beginning of Q2 so that probably prompted Pickens to lighten up.

Picken's biggest addition was 314,865 shares of Chesapeake Energy (CHK). Chesapeake has been under pressure lately because of the fracturing problems and inquiries in New York and Pennsylvania.

Carl Icahn bought 2.4 million shares of NRG Energy (NRG) and 2.0 million shares of Anadarko (APC) and 240,000 shares of Ensco PLC (ESV). Icahn also raised his stake in Chesapeake by 15% to 12.74 million shares. Overall he added about $923 million in energy stocks over the quarter.

Jim Brown

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