The Perfect Time for a Seasonal Play

11/27/2013 6:00 am EST

Focus: ENERGY

Daniel Gramza

President, Gramza Capital Management, Inc.

Despite being bearish on oil, Daniel Gramza does think this is the perfect time for a seasonal play on natural gas.

TIM:  My guest today is Dan Gramza and we’re talking about energy and where the opportunities lie in there for trading and investing, so Dan, there’s a lot of geopolitical things going on, a lot of still things in the Middle East, in Iran and what not affecting oil prices, or maybe not.  What are your thoughts here about oil coming in to 2014?

DAN:  Well, I have to tell you, I’m bearish oil, and I’m very bearish oil, but the fact is if oil goes up, I’d be a buyer, so I want to put it in those terms.  The reason I’m bearish oil is oil, in my opinion, should be about $70 a barrel.  Why are we at these prices?  Are we at these prices because we don’t have enough supply and demand is really high?  No.  I mean, our imports into United States are down 11%.  Our demand is down 10%, so what’s the deal here, and you are right, though, Tim, when you say there’s enough other uncertainty to hold it up out there.  Now, let’s talk about OPEC, our friends there.  If you look at Saudi Arabia, Saudi Arabia right now, with the billions put into their marketplace, to their country, especially after the spring – Arab spring that we had, they need crude oil about $100 a barrel to balance their budget.  Venezuela’s kind of in the same boat.  Iran is in the same boat, so what you see in crude oil is you’re seeing a shift in value.  A shift in value stays very slowly over time.  Price can move all over, but value changes very slowly, and my opinion, the value should still be around $70 a barrel.  Now, the other thing that you and I would have to be sensitive to, if for some reason it does go down to that range, it can affect some of the areas that we’re using right now; shale production, tar sands, $70 was a magic number there to make it economically feasible.  Although, they become more efficient and that may be changing that, but those are all some of the parameters that we need to be thinking about, but I am not bullish on that market long term.

TIM:  All right, let’s switch gears and talk about natural gas here.  Typically, as we come in to wintertime, you see some rising prices there.  What are your thoughts on that?

DAN:  Well, you’re absolutely correct, and we’re coming in a good time of year to expect to see that seasonal play.  The issue is supply.  We have plenty of supply in the United States and its growing.  Even though we’re seeing the number of drilling rigs for natural gas falling, as people are kind of tapering back in terms of production, our supplies are still very high.  We’re still not consuming enough of it to really start feeling that impact on prices.  We want to keep in mind – now we think about heating our homes, as you mentioned.  That’s 30% of the consumption of natural gas.  We use another 30% when it comes to industrial use, so the steel industry, the chemical industry, they use a lot of natural gas.  The third area that we consume a lot of natural gas that you and I would want to pay attention to would be the electricity, the utility area.  That uses about 30% of natural gas as well.  There, it comes in to the season play as well.  If you look at certain parts of the country, not only do we use natural gas for heating the homes, but our electrical consumption can go up as demand increases, because of weather conditions, and that can also have an impact on natural gas.  Long term, I am bullish on natural gas.  I think there is upside potential in terms of application and uses, especially from an expert point of view.  Near term, though, I’m really looking for a relatively sideways type market.

TIM:  Dan, thanks for your time.

DAN:  It’s always good to be with you Tim.

TIM:  You’re watching the MoneyShow.com Video Network.

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