Natural Gas: What Do the Insiders Know?

Eric Fry By Eric Fry, Macro Strategist, The Oxford Club

Oil & Gas

Natural gas has not yet kicked off a new bull market… but it is certainly trying.

A number of factors hint that the price of natural gas may be moving higher very soon.

First, the year-over-year level of natural gas inventories has declined every single week this year. Typically, as the chart below shows, periods of falling inventories tend to coincide with periods of rising gas prices…

Second, the number of natural gas rigs in operation is no longer increasing. The rig count topped out two months ago and remains 80% below the peak levels it hit in 2010.

This depressed rig count indicates that natural gas production is unlikely to boom anytime soon…

Third, insiders are buying their own stock at several natural gas companies. This insider buying is taking two forms…

  • Company stock buybacks
  • Individual purchases by company officers and directors.

In the former category, Anadarko Petroleum (NYSE: APC) just announced a huge $2.5 billion share buyback. This share repurchase will retire nearly 10% of the company’s publicly traded stock.

That’s a big vote of confidence in the natural gas sector. Presumably, the directors of Anadarko would not be buying back company stock unless they believed the natural gas market was strengthening.

Insider buying by officers and directors is also on the rise. At Anadarko, for example, board member Peter J. Fluor purchased $1 million worth of stock in May.

Here’s a sampling of more recent insider buys at natural gas companies…

  • Four buys totaling $382,000 at QEP Resources (NYSE: QEP)
  • Five buys totaling $785,000 at Apache Corp. (NYSE: APA)
  • Seven buys totaling $3.34 million at Carrizo Oil & Gas (Nasdaq: CRZO).

So far, these insider buys represent more of a trickle than a flood. But insider buys of any size have been relatively rare during the last couple of years.

The final hint that natural gas is heading higher is coming from the natural gas stocks themselves. They have been trending higher for the last seven weeks. For example, the First Trust Natural Gas ETF (NYSE: FCG) is up more than 16% since late August.

Perhaps this recent bounce is nothing more than that. But given the combination of bullish factors that are emerging in the sector, natural gas stocks deserve close attention.

I am not yet willing to call natural gas stocks a buy, but they are probably less of a sell. This is definitely a sector to watch as we move into the winter heating season.

Good investing,

Eric

P.S. Eric’s market insight on the macro level is unparalleled. It’s how he became “America’s Top Trader.” Right now, his Pinnacle System is showing gains as high as 173%… in just a matter of months.

For more information on Fry’s Pinnacle Portfolio, click here.