Natural gas exchange traded funds have been on a four-year losing streak as improvements in extraction techniques helped create a glut in supply. However, natural gas prices may finally reverse as companies are beginning to cut back.
EnCana (NYSE: ECA), a large natural gas produces, last week said that it will cut production by 600 million cubic feet a day, reports Gene Laverty for Bloomberg. On Wednesday, Talisman Energy (NYSE: TLM) announced it will cut spending on exploration by about $500 million this year.
“We’re seeing different folks saying they’re going to cut production and capital expenses,” Kyle Cooper, director of research at IAF Advisors, said in the article. “The temperature-adjusted storage changes are actually quite bullish. People are starting to see the bottom.”
Natural gas futures rallied late last week on the better-than-expected draw down in inventories, reports David Bird for The Wall Street Journal. The Energy Information Administration revealed that gas inventories dropped 127 billion cubic feet in the week ended Feb. 10, more than than expected 119 billion cubic feet withdrawal.
“The bulls were stampeding the shorts into covering, because the drawdown was better than expected,” Peter Beutel, president of Cameron Hanover, said in the WSJ article. However, the growing surplus “tells us that we have a steep selloff still in the works. These surpluses were already quite high. Now, they are absurd. We could come out of winter with nearly twice as much natural gas in storage.”
The natural gas market has been overflowing due to the unseasonably warmer winter months. [Is Natural Gas ETF Rally for Real?]
Additionally, the use of “fracking” techniques to extract natural gas has created a booming new industry that could propel the U.S. into the forefront of natural gas suppliers. [Natural Gas and Shale Oil Industry]