Bloomberg:

Natural gas drillers from Devon Energy Corp. to XTO Energy Inc. are idling rigs at the fastest pace since 2002, setting the stage for this year’s worst commodity to almost double as supplies drop faster than demand.

About 45 percent of U.S. rigs have been shut since September, which means fourth-quarter gas production will tumble 5.2 percent, faster than the 1.9 percent decline in use, the Energy Department forecast. Prices will rise to $7 per million British thermal units by January from $3.824 today on the New York Mercantile Exchange, according to a Bloomberg News survey of 20 analysts. The gain would be the largest since the first half of 2008.

The last time drillers stopped rigs at this pace was seven years ago, when futures advanced 86 percent. The world’s biggest hedge funds have already started to close bets on a drop in prices, government data show. Natural gas tumbled 30 percent this year, the worst start since 2006, as sales weakened with the recession.

My comment: I have been following with great interest the drilling rig data that is available on the Baker Hughes website. As drilling comes off and the effects of depletion kick in we should see a nice rebound in prices for natural gas. I would suggest watching the charts of natural gas and some of the bigger producers who will benefit from a price rise. Encana, Devon, XTO are some names. I think an aggressive strategy of buying some long dated call LEAPS could payoff nicely by next winter. Like I said I will be watching the rig count, natural gas in storage and the chart action on these stocks as the smart money will be moving in well before the natural gas price begins to seriously climb.

John Polomny
The Real Deal