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Schork Oil Outlook: Nat Gas Is the Yugo of the Energy Complex

Keeping in mind what Lord Keynes said a long time ago… the market can stay irrational longer than you can stay solvent…we stated our fundamental case against the gas bulls yesterday.

Here at The Schork Reportwe stand by our words - and our numbers.

No doubt, gas is cheap.

But, if there is no value, than cheap, in and of itself, is not a reason to own something.

On CNBC.com Now - These Auto Slideshows:

Back in the 1980s the Yugo GV was cheap also. The car was cheap for a reason. Its Soviet-bloc engineering (see today’s G.M.) exuded the feeling it was assembled at gunpoint. Gas today is cheap for a reason.

There is too damn much of it.

Over the weekend Alan Lammey at Natural Gas Week noted that ANR Storage was reported as 97.4% full, Sonat Storage was 97.3% full. Meanwhile, Texas Gas Storage was 96% full, Transco Storage was 83.3% full and Tennessee was estimated at 89% full… and it is only the middle of September for crying out loud. Storage is nearing capacity; early estimates peg last week’s injection around 80 Bcf. With limited shoulder month and soft industrial demand, where is excess production going to go if it cannot go into the ground in October? It has to wind up on the spot market. That is obviously not a reason to own October NYMEX gas. What we are seeing here is a technical bubble. For example, the underlying to the NYMEX contract at the Henry Hub lost 11 cents yesterday, while Transco Z6 inched up a penny to 3.16.

Go that? NYMEX Henry Hub gas futures closed at 3.297 yesterday afternoon, while the physical gas for delivery into New York City traded around 14 cents lower yesterday morning. NYMEX gas is a bubble… but be careful, Lord Keynes has a point.

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Stephen Schork is the Editor of, "The Schork Report"and has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.