Dow Sends Buy Signal That’s Worked Since 1921

The Dow Jones Industrial Average is sending a buy signal that has foreshadowed gains of 18 percent during the past nine decades.

 

The 30-stock gauge climbed to more than 10 percent above its mean level from the previous 200 days, rebounding from 34 percent below the so-called 200-day moving average in November, according to data compiled by Bloomberg. Eighteen of the last 21 times the Dow rallied from at least 10 percent below the 200-day level to 10 percent above, it posted gains during the next 12 months, Bloomberg data since 1921 show.

The CHART OF THE DAY tracks the difference between the Dow’s last price and its 200-day average since 1989. The lower panel displays the measure’s price, along with the buy signals it sent near the start of rallies in 1991, 1999 and 2003.

“This rally, while it will have its fits and starts, is the beginning of a new trend, not just a bounce,” said Michael Williams, managing director of New York-based Genesis Asset Management, which oversees about $2 billion. “It is a significant opportunity.”

The Dow posted an average advance of 18 percent during the 12-month period following buy signals since 1921, Bloomberg data show. In the six-month period, there were 17 advances for an average gain of 8.2 percent. In three months, it climbed 18 times, averaging an increase of 5.7 percent.

Returns by the Dow Jones Industrial Average 12, 6 and 3 months after the buy signal.

Buy Signal            12 Months         6 Months      3 Months
June 11, 2003          13.36%             8.98%         3.01%
Jan 8, 1999            19.49%            15.38%         5.75%
March 5, 1991           9.05%             1.21%         1.11%
Jan  27, 1989          10.18%            13.46%         4.14%
Sept. 3, 1982          31.38%            23.02%        11.67%
July 18, 1980           3.78%             5.34%         3.48%
Aug. 9, 1978           -3.74%            -7.76%        -9.83%
March 7, 1975          26.43%             8.63%         9.11%
Dec. 7, 1970            4.73%            12.75%         9.69%
May 8, 1967             1.02%            -6.60%         1.41%
Jan. 25, 1963          15.20%             1.18%         5.68%
July 24, 1958          33.51%            19.91%         8.53%
Dec. 13, 1949          16.26%            15.04%         3.15%
Nov. 6, 1942           16.66%            18.21%         8.29%
Sept. 11, 1939        -16.61%            -4.49%        -5.20%
July 6, 1938           -3.05%            10.95%         7.49%
Feb. 18, 1935          43.10%            19.09%         8.06%
Apr. 19, 1933          54.47%            23.53%        51.63%
Aug. 29, 1932          37.72%           -31.68%       -21.87%
Aug. 18, 1924          35.82%            14.36%         5.46%
Dec. 12, 1921          21.89%            12.53%         8.12%

Average                17.65%             8.24%         5.66%

Oil “Well Overpriced” and Will Keep Falling; Gasoline to Follow, Energy Trader Says

After rallying nearly 50% this year, crude prices hit a major speed bump this week as the dollar has firmed up and inventories have risen.
Oil prices were “well overpriced” in the $70s and will continue to weaken in the weeks and months ahead, says James Cordier, President of Liberty Trading Group and co-author of The Complete Guide to Option Selling.

Rather than increased demand, the recent rally was based mainly on speculative demand driven by government stimulus packages, Cordier says. Most notably, a flood of liquidity in China found its way into commodities and China’s economy now “looks like a bubble,” he says, joining a growing chorus.

More evidence the rally was not demand driven emerged Wednesday, when the Energy Department said inventories surged by 5.15 million barrels in the week ended July 24, the biggest weekly increase since April and vs. forecasts for a decline if 1.5 million barrels, according to Bloomberg.

In reaction, crude futures were recently down more than 5%, on track for their biggest decline in three months.

Cordier, who made a well-timed call on a coming oil rally here in February, now expects crude to fall $10 to $15 from recent levels. In anticipation of that drop, Liberty is making a bearish trade — “selling calls with both hands,” Cordier says.

If and when that happens, he also predicts prices at the pump will fall 10 to 15 cents from current levels, which would be welcomed news for cash-strapped Americans.

Surging Profit Estimates Signal 26% Rally for S&P 500

Surging Profit Estimates Signal 26% Rally for S&P 500

Analysts are raising U.S. profit estimates for the first time since credit markets froze two years ago, reducing valuations even after the steepest rally since the Great Depression.

Wall Street firms raised forecasts on Standard & Poor’s 500 Index companies 896 times in June and lowered 886, according to data compiled by JPMorgan Chase & Co. The last time analysts were bullish on a net basis was in April 2007, before more than $1.5 trillion of bank losses tied to subprime loans spurred the first global recession since World War II, the data show.

The failure to anticipate Goldman Sachs Group Inc.’s record second-quarter profits or Freeport-McMoRan Copper & Gold Inc.’s tripling of bullion sales forced analysts to boost 2010 projections. Wall Street firms estimate the S&P 500 will earn $74.55 a share next year, up from $72.54 in May. Stocks now trade at 13.13 times estimated profit, indicating a 26 percent increase in the S&P 500 should the index return to its five- decade average of 16.54 times annual income.

“There’s a sea change of opinion and it all goes back to the improving economic data,” said Fritz Meyer, the Denver- based senior market strategist for Invesco Aim, which oversees $348 billion. “Expectations got pushed too low in the depths of the recessionary mentality. That translates into upward revisions in earnings estimates and drives stock prices.”

Earnings Revisions

Analysts lowered profit forecasts at a record pace after the failure of Lehman Brothers Holdings Inc. in September caused overnight borrowing costs for banks to hit an all-time high of 6.88 percent, tipped the U.S. economy into the worst recession in half a century and sent the S&P 500 to a 38 percent decline, the biggest annual retreat since 1937.

Four out of five of the 4,716 earnings revisions in October were decreases, the most ever, JPMorgan data show. Analysts have raised estimates amid growing signs that the global economy has bottomed.

The turnaround in June from October was the biggest since the JPMorgan data started in 2000. The second-largest swing was in October 2002, the beginning of a five-year bull market that doubled the value of U.S. equities.

Futures on the S&P 500 rose 0.2 percent as of 2:18 a.m. New York time. The gauge rose 4.1 percent to 979.26 last week and has rallied 45 percent since falling to a 12-year low on March 9, pushing its price-earnings ratio to 13.13 based on 2010 estimates. The measure would have to rise to 1,233.06 for the multiple to equal its historic average since 1959, according to data compiled by Bloomberg.

‘Quick Snapshot’

The estimates indicate S&P 500 corporate earnings will rise 25 percent from this year’s projected $59.80 a share, which would be the biggest increase since 1995, the data show.

Revisions are a “really quick snapshot of whether people are becoming more or less optimistic,” said Jack Caffrey, an equity strategist at JPMorgan Private Bank, which oversees $380 billion in New York. “We expect the world to get better, so we wouldn’t be surprised to see stocks move higher.”

Second-quarter earnings announcements indicate analysts may need to change even faster. Of the 204 companies in the S&P 500 that have reported results, 75 percent have beaten consensus estimates, data compiled by Bloomberg show. No more than 72.3 percent have ever beaten analysts’ estimates for a full quarter since at least 1993, the data show.

Equity analysts remained too bullish last year as the economy shrank 6.3 percent in the fourth quarter and 5.5 percent in the first three months of 2009, the biggest six-month contraction since 1958.

Cost Cuts

Forecasters predicted fourth-quarter profit would fall 19.7 percent on Jan. 9, according to consensus estimates compiled three days before the earnings season began. Instead, earnings plummeted 61 percent, the biggest decline since at least 1998, according to data compiled by Bloomberg.

Analysts are being deceived by second-quarter results that were boosted by cost reductions, according to Christopher Sheldon, the Boston-based director of investment strategy at BNY Mellon Wealth Management, which oversees $142 billion globally. Only half of the S&P 500 companies that reported exceeded forecasts for sales, data compiled by Bloomberg show.

“When you look at bottom-up estimates, we would say that’s going to be dependent on a lot of things continuing to go right,” Sheldon said. “As we’ve moved away from the worst-case scenario, people have embraced this idea of a V-shaped recovery, and to us that’s a challenge.”

Invesco Aim’s Meyer says it is “perfectly reasonable” for stocks to rise as much as 25 percent through next year because the economic recovery will boost profits.

‘Grow Into Sequoias’

Economists doubled projections for third-quarter economic growth to 1 percent in July from 0.5 percent in June, according to a Bloomberg survey of 57 analysts this month.

Housing starts unexpectedly rose in June as construction of single-family dwellings jumped the most since 2004, while industrial production shrank less than forecast, reports from the Commerce Department and Federal Reserve in Washington showed. Smaller job losses also helped lift the Conference Board’s index of leading economic indicators to a third monthly advance, the longest streak in five years.

“We’ll rally on signs those little green shoots are starting to grow into sequoias,” said Randy Bateman, the Columbus, Ohio-based chief investment officer at the asset management unit of Huntington Bancshares, which oversees $12 billion. “The revisions in analyst estimates are a manifestation of those green shoots.”

Bateman said he expects the S&P 500 to gain at least 10 percent this year and is “overweight” energy, mining and technology stocks.

Freeport, Goldman

Analysts boosted their 2010 estimates for Freeport by 11 percent to $4.11 a share after the operator of the world’s largest gold mine surpassed second-quarter earnings projections by 90 percent last week, on faster bullion sales and copper production costs that fell 35 percent.

The per-share estimate has increased 138 percent since falling to a low of $1.73 in January. Freeport, which has risen 145 percent this year, trades at 14.55 times next year’s profit forecast based on last week’s closing share price of $59.82. That’s 40 percent less than its 2009 valuation of 24.31 times, data compiled by Bloomberg show.

Estimates for Goldman Sachs’s 2010 profit have risen to $16.19 a share, almost triple the low of $5.90 in March. The New York-based bank trades at 10.17 times next year’s projection. That’s a 63 percent discount to its multiple of 27.73 using earnings from the past 12 months, even after the stock rose 95 percent this year.

Asian Demand

Intel Corp., the world’s largest maker of semiconductors, reported a second-quarter profit on July 14 that was double what analysts projected as personal computer demand improves in Asia. The Santa Clara, California-based company also made a third- quarter sales forecast that topped consensus estimates.

That caused analysts to raise their 2010 earnings estimates for Intel to $1.08 a share, a 21 percent increase. Its shares reached a 10-month high last week and have surged 32 percent this year. Intel trades at 17.93 times next year’s profit, 36 percent less than the decade average of 28.13.

“There are a lot of situations where folks have just dialed expectations to the floor, and that’s just wrong,” said Brian Barish, president of Denver-based Cambiar Investors, which manages $4.5 billion and boosted its stake in Intel earlier this year. “The fundamentals, on balance, are moving in your favor, and there are still a lot of people out there that don’t believe that. There’s still some money to be made.”

The overhang of ready supply places a fairly firm cap on the price

NATURAL GAS
At the height of its late 2005 rally, natural gas in the U.S. was selling for just over $16/MMBtu, 350% higher than today’s price of $3.56. The oil/gas ratio, now over 18, is an all-time high… suggesting that natural gas is dirt cheap. So, it’s a buy, right?

In a phrase, not exactly.

According to a recent report by Natural Gas Intelligence, U.S. natural gas available for production “has jumped 58% in the past four years, driven by improved drilling techniques and the discovery of huge shale fields in Texas, Louisiana, Arkansas and Pennsylvania, according to a report issued Thursday by the nonprofit Potential Gas Committee (PGC).”

According to the report, the increase in gas discoveries and production improvements means that North America shouldn’t have to be concerned about gas supplies for up to 100 years!

Dr. Marc Bustin provided an overview of the situation in the May edition of Casey Energy Opportunities.

In the United States, the tremendous growth in natural gas resources and estimated recoverable natural gas, particularly from gas shales, just in the last two years (Figure 1) is sending tremors through the entire industry. These tremors include the risk of making obsolete the proposed $26 billion Alaskan and $16 billion northern Canadian pipelines to tap northern gas resources and a slue of proposed LNG terminals… unless they are for export!

The numbers currently kicked around are that something around 2,000 trillion cubic feet of gas are technically recoverable in the United States. At current production rates, this supply would last about 90 years.

Some analysts are predicting that even if the U.S. economy recovers in the next year, the amount of gas discovered to date in gas shales will severely dampen any increase in gas price for some time. According to a new study by energy consulting firm CERA (Cambridge Energy Research Associates), new technologies for unconventional gas fields are being applied so successfully that supply is essentially no longer a driver in either production or price in the North American gas market – whatever the market wants, North American gas fields can supply. CERA reports that natural gas production in the Lower 48 states has risen a startling 14% from 2007 to 2008, for example.

Figure 1. Major shale areas or formations in the U.S. and the estimated recoverable natural gas in 2006 and 2008. Modified from Daily Oil Bulletin (May 4, 2009).

Given the increase in production and the small slide in demand, the price of natural gas has fallen to around $3.50-$4.00 per MMBtu (down from $13 per MMBtu last summer). At these prices, many gas prospects are uneconomic, and thus there has been a marked decline in the number of wells being drilled. Rig activity (how many rigs are operating) is down about 50% in North America.

But here is where an interesting feedback mechanism kicks in. One of the characteristics of unconventional shale gas wells, and to a lesser extent natural gas wells in general, is that the production rate declines through time. Most shale wells’ production rates decline 60 to 90% in the first year. If you were a gas company trying to survive amidst today’s low prices, the rate of return on your capital investment would also be painfully low for a significant amount of gas if this were your initial year of production.

Another complementary fact is that over 50% of natural gas consumed in the United States today is from wells drilled less than three years ago, and 25-30% of the gas produced today comes from wells drilled last year (Figure 2).

Hence it follows that if there are 50% fewer wells drilled this year (from the drop in rig activity), new production will decline about 35-40% by the end of the year, so there will be gas shortages. Those will in turn lead to higher North American prices, which in turn should lead to additional drilling.

Figure 2. Historical gas production in the U.S. showing the percentage of production from vintage of well (modified from Chesapeake April 2009 Investor presentation from original data of HIS Energy)

Everything else being equal (which it’s not, this being the real, not the mathematical world), gas prices and drilling will see-saw until an equilibrium is reached. In detail, of course, things are more complicated, but it is pretty clear that gas prices will have to rise within the year, and the big losers will remain the more expensive plays that require higher gas prices to be economic.

Where will the gas price end up in the short term? A poll of analysts by Reuters suggests $6 MMBtu in 2010 (Daily Oil Bulletin, May 4, 2009), but I don’t think I would bet on a gas price based on a vote by analysts. At the same time, it’s an interesting coincidence (or not – coincidence, that is) that many prospects become economic at around the $6 MMBtu range. Among them are the Haynesville and Marcellus shales – and it’s no large leap from there to see their tremendous gas production potential acting as a buffer to gas prices going much higher in the near term.

Thus, while there may be some seasonal and relatively short-term trading opportunities in natural gas, the overhang of ready supply places a fairly firm cap on the price. Which begs the question, which big-trend energy opportunities should be getting our attention today?

Marin Katusa, who heads the Casey Research energy team, answers the question by, correctly, cataloging the opportunities according to geography.

In North America
1. Geothermal — the most interesting of the alternative energy sources, by a wide margin.

2. Nuclear.
3. Oil.

In Europe

1. Unconventional gas has, by far, the most upside.
2. Unconventional oil.
3. Small hydro (such as run of river).

In Africa

First and foremost, you want to avoid infrastructure plays (pipelines, refineries, etc). Then you want to look for areas with huge oil potential, which have been held off the market by concerns over political risk. I like what Lukas Lundin is doing in Ethiopia, Somalia, and Kenya, hunting for “elephants” with the idea of eventually selling the discoveries off to the Chinese.

In Asia,
1. Liquid Natural Gas (LNG)
2. Coal Bed Methane (CBM)

Lessons to learn

There are a couple of useful lessons to be derived by investors looking to tap into the virtually unlimited opportunities in energy.

First, just because something is “cheap” doesn’t mean it can’t stay cheap, regardless of historical ratios — if there has been a fundamental shift in the supply/demand equation. Which is very much the case with North American natural gas.

Secondly, geological and transport considerations make much of the energy complex a “local” market.

For example, while North America enjoys an abundance of natural gas, Europe is forced to rely on the heavy-handed Russians for the bulk of supplies. As you read this, there are companies looking to break the Russian grip by applying the same unconventional gas technologies that have so successfully built gas supplies in the U.S. — technologies that are only just now being applied in Europe. Early investors could reap huge profits.

In short, the real opportunities are not found by simply “investing in energy” but rather by taking the time to understand the structural differences within the energy complex and cherry picking the special situations that invariably exist in a sector this large.

Natural Gas ETF Plunges More Than Fuel Even as Shares Sell Out

The largest exchange-traded fund for natural gas, so popular that it ran out of shares two weeks ago, it has lost 43 percent this year and probably will keep falling until winter, trailing the fuel it’s supposed to track.

The United States Natural Gas Fund will suffer from record- high gas inventories and seasonal prices hitting the ETF harder than the fuel, said Teri Viswanath, the director of commodities research at Credit Suisse Securities USA in Houston. Investors piled into the fund this year, driving up its number of outstanding shares 11-fold.

“The amount of interest in this fund is a surprise given the trend in gas is down and not looking to change any time soon,” said Tom Orr, the director of research for Weeden & Co. LP, a Greenwich, Connecticut, securities brokerage, in a telephone interview. He predicted natural gas, this year’s worst performing major commodity, will fall below $3 per million British thermal units next month, from $3.669 on July 17, and rise to $4 in the fourth quarter.

The $4.6 billion fund, managed by United States Commodity Fund LLC in Alameda, California, made 300 million new shares available May 6 and grew to 347.4 million shares before running out July 7. It’s awaiting Securities and Exchange Commission approval to sell up to a billion more.

“If I knew then what I know now, we certainly would have registered a lot more shares than 300 million back a few months ago,” said John Hyland, the ETF’s chief investment officer.

Commodity ETF Boom

Its popularity coincides with a boom in commodity-backed funds. Investors poured $16.9 billion into such ETFs this year through May 31, more than triple last year’s first five months, according to the Investment Company Institute, a Washington trade group.

The Commodity Futures Trading Commission, in an effort to prevent speculators from pushing around energy prices, will hold hearings this month on limiting how many oil and gas futures that speculators, including ETFs, can hold. The Industrial Energy Consumers of America wants the SEC to block the fund’s expansion to prevent “excessive speculation,” according to a July 16 letter from the trade group, which includes Goodyear Tire & Rubber Co. in Akron, Ohio, and Tyson Foods Inc. in Springdale, Arkansas.

Investors bought the natural gas fund expecting the fuel to rise after it fell in June to the cheapest level compared with oil since 1992, Orr said. Instead, gas continued a yearlong slide. Since Dec. 31, natural gas futures on the New York Mercantile Exchange have declined 35 percent, 8 percentage points less than the ETF’s drop.

High Supplies

Fuel stockpiles increased 90 billion cubic feet the week ended July 10, reaching 2.886 trillion cubic feet, the highest for any July since the Energy Department started keeping records 15 years ago. Consumption by factories, steel mills and chemical plants, which accounts for 29 percent of U.S. demand, tumbled 13 percent in 2009’s first four months compared with 2008, the most recent Energy Department data show.

Viswanath predicts supplies will reach an all-time high by late October, making price increases unlikely until the first quarter of 2010, when cold weather and the early stages of an economic recovery boost demand.

The fund aims to mimic price changes in futures contracts on natural gas delivered to Henry Hub in Erath, Louisiana. It buys contracts for delivery in the next, or front, month. As those contracts near expiration, the fund sells and replaces them with the following month’s futures, a process called rolling.

Contango

Rolling hurts performance when the current contract is worth less than the next month, known as contango. The natural gas market has been in contango 94 percent of the time since the fund started in April 2007, compared with 78 percent since April 1990.

Contango doesn’t matter as much when prices rise. Gas cost $7.50 when the fund debuted and increased 81 percent to a 2 1/2- year peak of $13.58 on July 3, 2008. The fund gained 25 percent during that time, besting the Standard & Poor’s 500 Index, which fell 14 percent.

The ETF gave retail investors a way to “tag along on the commodity plays,” said Orr, who sometimes trades the fund in his personal account. When the fund started, “contango was not a factor, since people saw gas in a bull trend.”

From last year’s peak to now, gas has fallen 73 percent, and the S&P 500 has lost 26 percent. The gas ETF is down 79 percent.

‘Double Whammy’

For the fund’s investors, “even if prices stay stagnant, they lose on the roll,” Viswanath said. “If prices fall, it’s a double whammy.”

The steeper the contango, the more expensive rolling becomes. Contango has started increasing in late August and remained elevated for up to about three months every year for the past decade, data compiled by Bloomberg show. On Aug. 28, 2008, the spread between the front and second months doubled to 42 cents. On Aug. 30, 2007, it surged six-fold to 97 cents.

August is when traders move out of bearish bets made during the U.S. summer to wager that Gulf of Mexico hurricanes or cold snaps will increase prices as winter approaches, said Chris Jarvis, president of Caprock Risk Management LLC in Hampton Falls, New Hampshire.

Hyland, the fund’s chief investment officer, said contango is just one issue to consider when investing. The ETF offers a way to diversify, to bet on energy and to hedge against inflation, he said.

Profiting ‘Easily’

“The fund was designed for the majority of investors, both professional and retail, who can’t or don’t want to invest directly in futures,” Hyland said in a July 14 telephone interview. “If you believe that natural gas is cheap and that it’s going to rally and move back to the $7 or $8 range, then even if it stayed in contango the whole time, you could easily come up with a scenario where you make money.”

Jarvis said investors can profit on the ETF and avoid contango’s bite with options to buy shares in January and February at prices set now. Buyers would profit if the fund gains more than the sum of that so-called strike price and the option’s cost.

He predicted gas prices as high as $5.20 by then because producers will struggle to meet increased demand as the economy recovers. The number of active U.S. rigs has fallen to a seven- year low of 665 from a peak of 1,606 on Sept. 12, according to Baker Hughes Inc., an energy services company.

“The value on the curve isn’t in the front month,” Jarvis said. “It’s in the January and February contracts.”

Strategy Update: 8 July 2009

Strategy Update: 8 July 2009

There is a likelihood that the USD could continue to hold up or rally tomorrow thus killing gold and base metal prices again….. USD index closed at 80.66 tonight. It needs to break up above 81 and preferably hit 82 before an upside move could be confirmed.

EURUSD has dropped from above $1.4250 to nearly touch $1.3750 before closing slightly higher… this recent weakness in the cross is due more to a normal corrective move… the trend still holds and continues to point upwards…

USDJPY tracking lower still… stuck in a downtrend for now.

Japanese machine orders unexpectedly fell for a third month and the current-account surplus narrowed because of plunging exports, stoking concern that the economy will struggle to emerge from its worst postwar recession.

Orders, an indicator of spending by companies in the next three to six months, declined 3 percent in May from April, the Cabinet Office said today in Tokyo. The current-account excess shrank 34.3 percent from a year ago, the Finance Ministry said. Policy makers also offered unlimited loans to commercial banks at 0.1 percent in exchange for approved collateral.

It seems the USD is sitting on crucial levels now… can it break higher

Oil might fare better since its been down 6 days running… being sold hard… it might be down less than the rest and might actually be positive. Long Bonds are rallying strongly – 10 yr bonds yield dropped from 3.45% to 3.25% overnight.

Coal seems to be interesting… it is not reacting to the drop in Oil prices… even though oil fell $2 overnight… there seems to be a large amount of willing buyers for coal stocks… This could be also due to the recent Goldman rerating of future coal prices. At any rate, the strong tone in the face of a weak and falling oil price is very good. Any positive sign in Oil will very likely ignite Coal stocks to the upside.

The DOW will continue to slide in the coming days until oversold or a more significant support point is hit.

Metals broke the support points today (will it follow through ?)… tomorrow’s move (if lower) will confirm the breaks.

Natural Gas Declines on Speculation Inventories Will Increase

Natural gas fell for a seventh day in New York, the longest losing streak in two years, as a government report tomorrow may show that slack industrial demand amid the recession is adding to a supply glut.

July 8 (Bloomberg) — Gas inventories probably increased 85 billion cubic feet last week, based on the median of 15 analyst estimates compiled by Bloomberg. Storage levels rose to 2.721 trillion cubic feet in the week ended June 26, 21 percent above the five-year average, the Energy Department said on July 2.

“We’re going to be at record storage or near it,” said Chris Jarvis, president of Caprock Risk Management LLC in Hampton Falls, New Hampshire. “The lack of demand and big storage builds” are weighing on prices.

Natural gas for August delivery declined 7.6 cents, or 2.2 percent, to settle at $3.353 per million British thermal units at 2:58 p.m. on the New York Mercantile Exchange, the lowest since April 28. Futures have dropped 15 percent since June 26, the last day the fuel advanced.

“Prices are bound to fall to $3 by the end of October, and I’m afraid that may be too high with no major events this summer, no hurricanes that would disrupt production or pipeline maintenance,” said Laurent Key, an analyst at Societe Generale SA in New York.

Industrial consumption is forecast to drop 8.2 percent this year and total demand will slide 2.3 percent to 62.1 billion cubic feet a day, the Energy Department said yesterday in its monthly Short-Term Energy Outlook.

Consumption of gas at factories, steel mills and chemical makers, which accounts for 29 percent of U.S. demand, has tumbled during the slowdown. Power generation is also about 29 percent of gas usage.

Bearish Weight

“Fundamentals have been bearish for a long time on this market,” Key said. “We’ve had a huge storage injection pace due to really high production in the U.S., despite low prices.”

Producers have slashed output. The number of gas rigs working in the U.S. last week totaled 688, down 57 percent from 1,606 in September, according to Baker Hughes Inc. data.

U.S. natural gas production will fall 0.6 percent to 58.23 billion cubic feet a day this year from 2008, the Energy Department said yesterday.

Mild weather in large population areas has stifled consumption by power plants to meet air conditioner demand, and there have been no storms to threaten output, Jarvis said.

No Hot Weather

Average and below-normal temperatures are forecast through July 21 in an area stretching from North Dakota to New York, according to the Climate Prediction Center in Camp Springs, Maryland.

“We haven’t had the hot weather to jack up demand” and whittle supply, Jarvis said.

The hurricane season began June 1 and runs through November, producing storms that have the potential to enter the Gulf of Mexico and disrupt production from offshore gas platforms.

Natural gas also slid as crude oil futures plunged a sixth day in New York after an Energy Department report showed the sour global economy has crimped consumption. Total U.S. daily fuel demand averaged 18.4 million barrels in the past four weeks, down 5.9 percent from a year earlier.

“Gas prices continue their descent, gathering directional momentum from the rest of the complex and the deteriorating technical picture,” Michael Fitzpatrick, vice president for energy at MF Global Ltd. in New York, said in a report.

To contact the reporter on this story: Mario Parker in Chicago atmparker22@bloomberg.net.

Thermal Coal Price Forecast Raised by Goldman on Supply Curbs

July 8 (Bloomberg) — Goldman Sachs JBWere Pty. increased its forecast for Asian power-station coal prices in the 2011 financial year, citing export constraints in Australia, the biggest supplier of the fuel, and Indonesia.

The estimate for benchmark coal burned by Japanese utilities in the year ending March 31, 2011, was raised to $80 a metric ton from $75, Goldman analysts wrote in a note to clients dated yesterday. UBS AG increased its 2010 forecast to $90 from $80 on July 6.

“Availability from Australia and Indonesia is limited by port, rail constraints and producers in both countries have already contracted much of their 2009 production due to strong demand from China,” Goldman analysts led by Melbourne-based Malcolm Southwood said in the note.

Bottlenecks at Australian ports, heavy rain in Indonesia and increased imports by China, which burns the fuel for about 80 percent of its electricity, reduced supplies to Asian customers in 2007 and drove up prices. Limitations on exports may result in a tighter market later this year, Goldman said.

Thermal coal supplies may also come under pressure as some miners switch to providing coking coal used by steelmakers in response to higher prices for this product, Goldman said.

Power-station coal prices at Australia’s Newcastle port, an Asian benchmark, climbed 6.5 percent to $73.13 a ton in the week ended July 3, according to the globalCOAL NEWC Index.

Technical Warning: Dow 400 point risk in near term !

Dow breaks the 8,200 level today with a strong push…with the Dow down 161 points. Next decent support level around 7,800. Having broken the 8,200 the Dow looks poised for a sharp move down from here until it is either over sold or hits a much much stronger support level.

Oil Price to Match Record $147 in Three Years, Pickens Says

July 7 (Bloomberg) – T. Boone Pickens, founder and chairman of Dallas-based BP Capital LLC, said oil prices will match last year’s record $147 a barrel in three years as producers fail to increase output.

“We’ll be flat at 85 million barrels a year,” Pickens said in an interview. “By 2013 we’re going to see a decline in production. In 10 years we’ll be at $300 a barrel.”

Pickens, 81, one year ago started a $60 million promotion for a national energy plan that relies on domestically produced natural gas to cut U.S. dependence on foreign oil. Without a switch to gas, the U.S. will be spending $2 trillion a year importing oil, he said.

“The problem is we don’t have the oil,” Pickens said. “And we’ve got gas coming out our ears.”

Crude oil futures for August delivery today fell $1.12, or 1.7 percent, to $62.93 a barrel on the New York Mercantile Exchange. The price has gained 41 percent this year.

Oil is not going to get any less expensive relative to natural gas, Pickens said. He said gas needs no refining and emits 50 percent less pollution than gasoline.

His plan has received some support in Congress, said Graham Mattison, an analyst at Lazard Capital Markets in New York.

“Political support for the natural gas vehicle industry continues to build,” Mattison said. A House bill would double some natural-gas vehicle tax credits and double the amount stations would get to install pumps for the fuel, he said. The Senate may consider similar legislation tomorrow, he said.