Morgan Stanley sees natural gas prices rising to $3.95 through 2013 as production tightens and demand picks up pace.Prices have hovered around $2.50 this week.
“We believe that gas fundamentals have passed their cyclical through,” writes analyst Hussein Allidina in a note published today.
“At around 66 bcf/d, we believe that domestic production is at its cyclical peak, and expect declines into 1Q13. At the same time, we see lower prices stimulating a marked increase in gas generation. Together, these factors are setting the stage for inventories — bloated by record temperatures through the winter — to shed their surplus later this year.”
The bank had previously set bullish price targets on the entire natural gas producing sector as a result of positive technical indicators. It forecasted a 10 per cent dividend growth for hte industry in 2012 and points to net asset value upside and strengthening demand. “
“Supply growth / shifts and demand maturation continue to encourage further development and support midstream fundamentals,” he writes.