The fundamental reason why this market may not go down (when for all intents and purposes it probably should) is because there are still plenty of investors still sitting on the sidelines just waiting for it to fall to get back in.
I hate the idea that the market level is in fact set by supply and demand rather than fundamentals. But you would argue that supply and demand are a part of fundamentals. Yes and no. Yes in the sense that the market is simply a market with prices set by supply and demand. But no in the sense that the market does not always reflect the fundamental economic reality of an asset.
When supply and demand are more a function of sentiment than economics, then perverse outcomes tend to happen.
Showing posts with label demand. Show all posts
Showing posts with label demand. Show all posts
Tuesday, May 12, 2015
Thursday, October 31, 2013
Working Through The Gas Equation
Demand is rising for natural gas due to low prices and government policy shifting the electricity industry away from coal.
Prices are low because the shale gas revolution is producing more gas than ever. The industry is constrained by how much gas it can produce brought on by the limits of men and materials available to drill more holes. At some point, demand is likely to exceed supply (not sure where that is) leading to rising natural gas prices. Current cost of drilling ($5m-$10m a well) is high and likely not producing much profit for producers with depressed gas prices. When the supply/demand dynamic changes, then producers will experience hyper profits. Caveats are environmental backlash/limits on fracking and substitution of gas for coal should prices rise.
The gas industry is rushing to build LNG terminals to allow US gas to reach much higher prices for gas in overseas markets.
The effect of all this will be to increase the price of gas in the US and decrease the global price of gas. It will lead to an increase in demand for gas and the development of a global gas pricing system similar to global oil prices.
Implications: Producers of drilling equipment will sell more equipment to meet rising demand. Oil & Gas producers could be in for windfall profits if the price of gas goes up. Coal likely to rebound.
Prices are low because the shale gas revolution is producing more gas than ever. The industry is constrained by how much gas it can produce brought on by the limits of men and materials available to drill more holes. At some point, demand is likely to exceed supply (not sure where that is) leading to rising natural gas prices. Current cost of drilling ($5m-$10m a well) is high and likely not producing much profit for producers with depressed gas prices. When the supply/demand dynamic changes, then producers will experience hyper profits. Caveats are environmental backlash/limits on fracking and substitution of gas for coal should prices rise.
The gas industry is rushing to build LNG terminals to allow US gas to reach much higher prices for gas in overseas markets.
The effect of all this will be to increase the price of gas in the US and decrease the global price of gas. It will lead to an increase in demand for gas and the development of a global gas pricing system similar to global oil prices.
Implications: Producers of drilling equipment will sell more equipment to meet rising demand. Oil & Gas producers could be in for windfall profits if the price of gas goes up. Coal likely to rebound.
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