Since the end of 2011, the average weekly closing price for front-month US natural gas futures is roughly $3.15/MMBtu, in-line with the current price of $3.12/MMBtu. In the short term, US gas storage levels are at the lowest levels in 15 years, supply growth is constrained and demand remains robust. That could lead to a spike in NYMEX gas futures to $4/MMBtu or higher this winter.

However, in the intermediate to long-term, we see little scope for gas to sustainably break above this average range around $3/MMBtu. We favor producers leveraged to crude oil or companies with exposure to low cost gas production.