Natural Gas Bottom In Place
Natural gas staged an impressive reversal this morning. Chesapeake Energy Corporation (NYSE:CHK) said they would shut down some of their natural gas production based on the current price of the commodity. This is a clear indication that natural gas has reached a bottom. Why? Because traders now have a firm price level where companies are going to cease natural gas exploration and production. At its level, natural gas is not profitable to companies. This means production will eventually fall and supply will meet demand. The bottom is in for natural gas. Eventually, as natural gas is used more widely, price will rise.
Prior to this announcement, natural gas was trading at $2.25. Once it hit the wires, natural gas spiked dramatically higher. To give you a sense of the price spike, the United States Natural Gas Fund, LP (NYSEARCA:UNG) was trading at $4.89. After Chesapeake made the announcement, it spiked to $5.55 and is currently trading at $5.32, +0.22 (+4.31%).