One on One With John Kilduff, Energy Analyst at Fimat USA
Thursday, September 21, 2006
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SUSIE GHARIB: A government report today showed that U.S. natural gas supplies rose sharply last week and prices fell to the lowest level in two years. October futures for natural gas closed down $0.15 to $4.78. Joining us now to talk about the outlook, John Kilduff, energy analyst at Fimat USA. Hi, John.
JOHN KILDUFF, ENERGY ANALYST, FIMAT USA: Good evening, Susie.
GHARIB: So how low do you think these prices can go?
KILDUFF: They can go quite a bit lower now. I mean we are through some very key support points that we`re experiencing really, an abject sell off. It appears to be institutional abandonment of the commodity as an investment, not just as any kind of a hedging vehicle and so we`re going to be watching carefully to see if $4 holds. If it does not, we could potentially get down to as low as $2.46 a unit for natural gas.
GHARIB: What do you see as the fundamental reason behind this price drop?
KILDUFF: Well, the biggest thing is that after three rough and really two hellatial back-to-back hurricane seasons, we`ve got nothing this year. We`ve gone unscathed and I dare say that we will go completely unscathed. It`s allowed us to build up a tremendous amount of natural gas in inventory. It`s allowed a lot of the fears about those supplies to race out of the market and allow us to fall to these low levels. We`ve been lucky for a change in terms of energy.
GHARIB: What about on the demand side of the equation? Do you find that businesses and consumers are perhaps using less or turning to alternative sources?
KILDUFF: That`s been part of the equation as well, the high prices have done their damage. Many industries, the fertilizer industry in particular, has moved away from the country, overseas never to come back again. So we are seeing some what we call demand destruction as part of the high price. And also the economic data, the outlook, has turned sour. The economic data that Paul just referenced a few moments ago, the GDP getting cut in half quarter on quarter are all contributing to a lessoning demand forecast for natural gas and energy overall.
GHARIB: What`s the biggest threat to natural gas prices? What could trigger them to go back up? KILDUFF: It`s going to be weather. If we get a late-season hurricane or if we get any early onset cold winter weather, prices will rebound. For two reasons, people won`t want to be caught again on the upside of prices continuing to spiral to go high again. but also because we know from history here that we can rip through even abundant amounts of natural gas if we get significant cold weather throughout the winter and particularly if we get early onset cold weather.
GHARIB: John, you kind of made reference a little bit to the investment side of natural gas. To what extent do you think that the implosion of some hedge funds recently has contributed to this price drop?
KILDUFF: It`s most certainly added to it. There`s basically been a major forced liquidation of a sizable player in the market. But also, I think the pension funds that have been invested in energy, the endowment funds that have come along in the past couple years are also I think looking outside the commodity market now into bonds, into a Dow Jones Industrial Average that`s approaching a record high and basically rotating their asset mix and cutting back on energy right now. So that`s also having us see some institutional abandonment of natural gas and energy overall as an investment for this class of investor.
GHARIB: A lot of good information. Thank you so much, John, for coming on the program.
KILDUFF: Thank you Susie.
GHARIB: We`ve been speaking with John Kilduff, energy analyst at Fimat USA.
