Despite the recent run-up in commodities prices and commodity-related stocks, natural gas is lagging. According to the U.S. Commodity Futures Trading Commission (CFTC) bets on natural gas from hedge funds have fallen to the lowest level this year.
“We are not a bull currently because we think we are in a chronically oversupplied market,” Robert Raymond, principal and founder of RCH Energy, told CNBC’s “The Strategy Session” on Monday.
"The real issue with natural gas [stocks], over the course of the last 24 months, have effectively collapsed—trading at a new 52-week low today—is the fact that supply is overwhelming demand,” Raymond said.
“Our best guess is that ultimately we end up with some sense of capitulation and some consolidation. There will be some bankruptcies. It will be the bottom of the cycle sometime in 2011. That's when it will be interesting," he said.
Right now in the industry,there is a disconnect because producers leased a lot of acreage in 2007 and 2008. Now, they have to drill wells and hold that acreage under certain timelines related to those leases. If they don’t, they’ll lose that acreage, he said, adding, "That is measured in billions and billions of dollars of leaseholds.
But many in the energy sectorthought we would see more demand for natural gas and possibly some legislative changes by now.
Raymond said the collapse in the economyand the industrial side of the equation shifted the demand curve immateriality. At the same time there was a follow-on bet to some degree "that natural gas would become a more utilized fuel source—ultimately I actually believe that will be the case but it will take longer then people thought,” he concluded.