Out of favor with investors as a result of today’s low price, natural gas offers the best energy investment opportunity of the decade on the basis of accelerating demand, environmental advantages and a supply breakthrough that radically changes the outlook for cleaner energy, we believe. While the potential reward is a several fold gain, the main risk is timing, in our opinion. The immediate outlook depends on economic activity, political action, and weather, all of which no one can predict with much certainty. Because the current near-month futures price of about $4 a million btu is down some 75% from the high of the past five years of about $15, we think the downside risk is low. Strong upside, no cost to wait and minimal downside looks like a money-making combination for patient investors. Five of six buy recommendations are concentrated from 59% to 100% on the growth fuel. We like oil, too, as we see the current near-month price of about $74 a barrel exceeding the $145 high from the past five years in the next decade. Opportunistic Price Outlook
The U.S. Energy Information Administration probably spends more money than any other group to forecast energy price. Yet the product of their effort falls within a wide band of uncertainty. Forecasting a price of $5.24 for December 2011, the actual price might be as high as $10.04 or as low as $2.79 and still be within the confidence interval (see chart Henry Hub Natural Gas Price, below). The oil price forecast for December 2011 is $84 a barrel within a confidence interval of $41 to $164 (see chart West Texas Intermediate (WTI) Crude Oil Price, below). Natural gas price is at a low extreme at a third the energy equivalent of oil (see chart Oil/Natural Gas Futures Ratio, below). (more)
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