A.G. EDWARDS & SONS, INC.
One North Jefferson, St. Louis, Missouri
314-955-3068
(November 18, 1999) ENERGY COMPLEX: Warm temperatures have pressured natural gas prices recently. November degree-days are running well below normal.
Eastern Degree Days
For the past three months, degree-day accumulations for the region east of the Rocky Mountains have been running near average. So far for November, accumulations are well below normal. We project a month-end total based upon temperatures for the first half of the month. The current total is 30% below the lowest accumulation for November.
Natural Gas Model
This chart shows our natural gas pricing model. The current fair value, taking into account current November degree-days, is 2.850. Thus, December futures, trading below 2.500, suggests a deeply undervalued market. It's almost as if the market is assuming the balmy November, being enjoyed in the Midwest, will continue all winter. Even for a warm winter, this is unlikely. Any cold snap, even of moderate duration, would be very bullish for the market.
We remain long January natural gas from 2.650 and 2.600, risking to 2.550 on the close with an objective of 3.300.
Bill O'Grady