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?

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