If there’s any good news for investors this week, it is that NYMEX seems to have hit its support level for the moment. Prices keep hitting $2.70 without breaking through. Today’s storage report, which came in marginally above expectations at 54 Bcf, proved a serious test, but support appears to be holding. What happens next week, as we move to a new front month, is another matter.

Bad news for investors. Good news for you.

Among the interesting statistics coming out of the current price of natural gas…lowest price in seven years, highest storage levels in fifteen years…is the fact that oil is now priced at 25 times the price of natural gas. That’s more or less unheard of.

We said it last week, and we’ll repeat it here: we’re writing a new set of rules right now. We won’t know what they are, or how they play out, until the recession recovery reaches the point that we know what a working economy feels like again. This much is for sure: the level of complexity involved in understanding energy prices will, like the oil-to-gas price ratio, be several factors greater than anything we’ve known before. The days of a relatively straightforward domestic supply vs. demand structure…a volatile one, admittedly, but a straightforward one nonetheless…are gone.

We came across another example of an old standby that just doesn’t work as a price predictor the way that it used to: rig count. Traditionally, one way to measure supply was to track rig count. And as you know, rig count has been dropping pretty much in sync with natural gas prices, to the point that current counts are around 45% lower than they were a year ago. As rig count goes down, supply goes down, right? And as price continues to drop, rig count goes with it, right?

So why has natural gas production for 2009 been slightly higher than it was last year?

Trace to a few posts and you will find your answer. Natural gas technology has changed radically in the past few years. Many of the new wells tapped during the drilling boom leading up to 2008 used the new technology, and the dynamic of these new kinds of wells and this new kind of production doesn’t fit the old “count the rigs” approach. Understanding the real picture of production capacity, both actual and potential, is going to require a more comprehensive and subtle strategy than before.

Plus, for a lot of producers, selling low beats not selling at all. And each producer does what is best for them.

Economic models talk a pretty simple game when it comes to price and production: reality doesn’t always work so smoothly. It’s natural to assume that production will drop as prices do. It’s natural to assume that markets eventually balance themselves. But if you settle for the natural assumptions, you might miss the real picture and miss the way the market will really move.

Oh, and by the way…rig count went up this week. You probably saw that one coming.

If you read the analysts, you have been seeing a notable uptick lately in recommendations that investors hedge their energy bets. This is what analysts recommend when they don’t have simple answers any more. From your standpoint, as an energy buyers who is buying, who will still be buying a year from now, and will, we hope, still be buying five and ten years from now, you also need the comprehensive approach that Cost Containment Intl. provides. The smart investors are starting to look past the simple answers. Are you?

Check the NYMEX

Yup. NYMEX is under $3.00.

The weekly storage report followed the trend of the past several weeks, coming in about 3 Bcf below predictions, but a report like that isn’t going to cheer up investors any more. It’s clear that it’s going to take a major injection shortfall to convince NYMEX that the bottom has been hit.

Meanwhile, fundamentals were in the news this week, as not one, not two, but three hurricanes made appearances on the weather map and made at least feints in the direction of the Gulf. No one blinked. There was not even a tepid rally. That would not have been the case in any other year.

You can choose to see this as an investor’s funk being an investor’s funk. But there is another explanation being put forth by some analysts: hurricanes just don’t matter like they used to.

We’ve written about the recent innovations in drilling techniques, which have added vast quantities of natural gas to America’s reserves. Most of these new natural gas fields are not in the Gulf; they are well inland, and largely safe from the effect of hurricanes, which lose power as they travel over land. While much of the production and distribution network is still located in harm’s way, the chance that anything short of a catastrophic event will have a major impact on production has decreased substantially. Not only does America have more domestic reserve than ever before, these reserves are safer than ever before.

The question has been asked: why is ANYONE producing natural gas at the current prices? The answer: even at current prices, producers have to keep producing in order to keep some kind of cash flow going. In past years, they would have shut down and gotten by on credit. But in 2009, there is no credit. The old way of doing business isn’t the way business is being done right now.

Things are changing. Every day, it seems, we find new reasons to acknowledge that the old conventional wisdom won’t be a reliable guide for America’s energy future. At Cost Containment Intl., we have been watching the new trends and developing new strategies. As we’ve seen from the tone and the temper of the current Health Care debate, a lot of people in this country think fear and shouting is the proper response to a changing landscape. We think a more measured response, with the right guidance, is the surer path to a secure energy future.

Meanwhile, NYMEX is keeping it interesting. The big news this week was a large purchase by an unnamed hedge fund…for “call” options. In other words, a major bet that prices will increase. This is what hedge funds do; make moves that are contrary to conventional thinking. But this one is a bit of a stretch: prices will have to triple by the end of the year for the bet to pay off. Is it just a wild stab (these kind of plays are referred to as “lottery ticket buys”)? An attempt to influence the market and shore up prices? A sign they know something nobody else does?

It’s a brave new world here. We will be watching.

Check the NYMEX

NYMEX has been in a funk all week, and even a marginally-lower-than-expected injection in today’s storage report is doing nothing to stem the tide. Perhaps investors looked at their calendars and realized that Summer is winding down. Perhaps they read one of the increasing number of articles suggesting that the recent spate of low injection numbers have been due to a storage infrastructure that’s nearing capacity rather than to the long-sought tipping point between supply and demand.

Funk for them. Fun for you. For the moment, anyway.

Once again, the most interesting news of the week was on the investment front. If it has seemed, over the past month, that we should be moving our posts to the financial section, the simple fact is that all other aspects of the energy markets are currently in limbo. Fundamentals are pretty much meaningless when your swamped by surplus supply. Demand will remain in the doldrums until the economy returns to some semblance of normal functioning.

But something is ALWAYS happening over on the investment side. And this week’s development is pretty telling.

The SEC gave the UNG ETF the green light to issue the additional share it had requested. This despite the fact that the fund recently engaged in a large trade swap…a fairly risky move similar to the kind of trades that got us into all this trouble, and a move that falls pretty far afield of the fund’s stated purpose.

It is interesting to note that UNG isn’t going to issue the shares; it is waiting for another regulatory agency, the Commodity Futures Trading Commission, to make it’s ruling. But that’s not the point.

The point is that the current administration, which came to office making bold promises of change and responsibility, has once again decided to let things keep going the way they were. An opportunity was presented to make a bold statement, and the SEC passed.

Now, we’re not saying we either do or do not favor greater regulation of the investment markets. We don’t advocate political positions. At Cost Containment Intl., our job is to keep one step ahead of the energy markets and find you the best path to savings through whatever conditions exist.

But it’s becoming increasingly clear to us that a lot of the talk about “change” in Washington D.C. was just that…talk. And while this might be fine with you from a political perspective, you need to appreciate what it means in terms of your energy future.

Because we currently have no idea where energy prices will be a year, let alone five years, from now. World energy demand is in a complete state of flux. The world economy in a complete state of flux. The future role of natural gas as an energy source, including its potential to be used in completely new ways, is in a complete state of flux. Add a futures market which continues to act without regulation, and the potential is pretty clear. Don’t think 2008 could happen again? Think again. Right now, despite the lessons of the past year, there’s little in place to prevent it.

Still, there’s one other thing that hasn’t changed. Cost Containment Intl. still knows the way to get you the energy security you want. Give us a call.

NYMEX is not a happy place at the moment. Today’s weekly storage report came through above expectations, and a sustained rally that had pushed prices over $4.00 is evaporating by the minute. Seems that a week of nothing but good economic news…solidly good economic news at that…isn’t enough to overcome the current hair-trigger response to the storage report. Prices currently look set for a 10% drop by end of day.

And there is a new wrinkle to storage: the question of capacity. NYMEX appears to be keying in on the storage numbers as the one dependable sign that natural gas production has finally dropped enough to meet the low demand. But there are indications that the storage infrastructure is simply nearing capacity, and the low numbers are a reflection not so much of limited supply as of limited space left to put it.

If you’re looking for sure things in natural gas right now, you’re looking in the wrong place.

Which brings us to the week’s most interesting development. With fundamentals and market forces holding steady for the past few months, we have been watching the one piece of the overall price puzzle where there has been movement: speculation. The Commodities Futures Trading Commission (CFTC) is continuing to hold hearings on the role of speculation in commodities markets, and every indication points to new restrictions being put in place.

You’ll never guess who gave testimony in favor of this. John Arnold, a former Enron trader.

What makes this even more unexpected is that Mr. Arnold is currently a manager at a hedge fund that trades in energy commodities. And he’s not the only hedge fund manager saying this. Admittedly, he’s parsing his words…recommending restrictions on forms of trading that are not his firm’s bread and butter…but a year ago, the notion of anyone within the financial sector speaking publicly in favor of restriction and regulation would have been laughed out of the room. We are living in interesting times.

Chances are he’s just trying to get a good word in ahead of the curve. There are strong indications that the CFTC is going to release a report soon that will reverse it’s previous position and conclude that speculation DID play a role in last year’s price spike. Better late than never. That would set the stage for tightening regulations moving ahead. But the current administration has thus far done a better job of setting goals than meeting them, so we’ll see. As we’ve said, nothing is certain in the energy markets.

And yes, energy Exchange Traded Funds (ETFs) are still at the center of the discussion. For us at Cost Containment Intl., this is an interesting example of how the same idea can be used to different ends. We work the same way as ETFs: aggregating thousands of individuals into a single group, then using the power of the group to benefit each member. But we aim for very different results. At Cost Containment Intl., we use the power of our aggregated customers to lower prices on thousands of contracts individually negotiated in a free market. There are no losers here. The ETFs appear to be using the combined assets of their members in a single play, to gain control of one part of the energy futures market. When one group calls the shots, the market isn’t free any more. A win for them, but a loss for everyone else. Which is making them some unexpected enemies.

When people start saying things you never thought you’d hear, it’s time to keep your eyes, and your ears, open.

Check the NYMEX.