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Higher winter demand should spark nat gas prices, aiding COG, Stanley says

Stock MarketsAug 01, 2017 06:24PM ET
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© Reuters. Higher winter demand should spark nat gas prices, aiding COG, Stanley says
  • Natural gas focused drillers should benefit as low prices are likely to drive up demand at power plants, Morgan Stanley (NYSE:MS) says.
  • Prices for future delivery have dropped below $3/MMBtu, which sets up a more attractive backdrop for natural gas producers as low prices give power plants a reason to burn natural gas rather than coal, according to Devin McDermott, the firm's top gas and power commodity strategist.
  • Under normal weather conditions, Morgan Stanley forecasts natural gas prices could rebound to $3.25-$3.30/MMBtu in Q4 2017 and Q1 2018, compares with prices just above $3 in the forward curve.
  • McDermott says the best way to play the outlook is to invest in drillers with low cost structures and excellent balance sheets such as Cabot Oil & Gas (NYSE:COG), which the firm upgrades to Overweight from Equal Weight citing the stock's excellent risk/reward profile in a volatile oil and gas price environment; the firm also says COG's downside is limited from lower gas prices due to a strong balance sheet and free cash flow.
  • However, Stanley maintains its long-term bearish outlook on natural gas and is underweight other drillers such as Southwestern Energy (NYSE:SWN) and Gulfport Energy (NASDAQ:GPOR).
  • ETFs: UNG, UGAZ, DGAZ, BOIL, GAZ, KOLD, UNL, DCNG, GAZB
  • Now read: Cabot Oil & Gas Corporation 2017 Q2 - Results - Earnings Call Slides


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Higher winter demand should spark nat gas prices, aiding COG, Stanley says
 

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