I was focused on writing the 4^th issue for subscribers, due out the second week of September, but I came across a research article I wanted to share with readers.

Martin King, an energy analyst at First Energy in Calgary is the latest to trot out the “it’s-darkest-before-the-dawn-buy-natural-gas-stocks-now” theme, in a 5 page note on August 31.  I’ll tell you about his key points in a minute.

But first, I want to say this guy has a track record that I follow.  Back on February 19 of this year, he put out a similar research note on natural gas stocks that was uncannily accurate. Just like now, sentiment for natural gas stocks was very low, and he stuck his neck out saying it’s time to be a contrarian and buy.

And natural gas stocks did have a strong spring – much stronger than I anticipated.  Investors following Mr. King’s thesis made good money through the spring, as the Amex Natural Gas Index went from 300 to 480 over the next 3 months, and Canadian natural gas stocks bottomed within 10-14 days of his call, and had a great spring.  Both the index and many stocks jumped 50% or more in the next 3 months.

So this man has my attention.  I am now going to introduce a natural gas stock to subscribers in my next issue.

I subscribe to Steve Saville’s “The Speculative Investor” (www.speculative-investor.com) and find his twice weekly column very interesting.  He has given me permission to share this last weekend’s article on natural gas and natural gas stocks, which mirrored my thinking almost exactly.

After reading this article, please go check out his site.  He is based in Asia.  He covers stocks from all resource sectors, mostly juniors, and I find his macro overview to be very interesting.

By Steve Saville,

originally published as part of his Weekly Market Update for the Week Commencing 24th August 2009

The following three charts tell an interesting story.

The first chart shows that the oil/natgas ratio (the price of oil relative to the price of natural gas) hit a new multi-year high — and perhaps a new all-time high — last Friday. The ratio would be around 6 if oil and natgas were trading at their energy-equivalent levels, so with the ratio near its current level of 22 it means that oil is effectively trading at a 250% premium to natural gas.

When markets move way beyond rational valuations and stay there for a prolonged period, people will become accustomed to the new valuation level and explanations will emerge as to why the new valuation really does make sense. However, a while later it will be discovered that the new valuation was as nonsensical as it originally appeared.

Could this be the week that natural gas bulls have been waiting for? The week when net injections into storage are so much below last year’s or the five year average – that they believe the coming production-falls- off-a-cliff scenario has started, and be the sign that natural gas prices will rise?

And would that give natural gas stocks a run up?

I ask because when looking at a chart (from Peters & Co., a Calgary brokerage firm specializing in oil and gas) of the last five years injection statistics, I see a big anomaly.  In 2008, net injections of natural gas in the US spiked over these same coming three weeks.  Here is the chart: