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RCH Energy's Raymond: Natural Gas Could Jump to $8

By Dan Weil   |   Monday, 24 Feb 2014 08:03 AM

Natural gas prices soared to a five-year high last week, helped by much of the nation's foul weather, and Rob Raymond, principal of RCH Energy, says the move may well continue.

March natural gas futures settled at $6.42 per million BTUs on the Nymex early Monday.

"With sustained cold, you could see $7 or $8," Raymond tells CNBC. "This is about rationing demand, because basically you're running out of molecules. And at some point, if the supply side can't react in a 15-to-30-day period, you've got to bid it up to cause people to consume less of it."

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The extreme cold weather puts great strain on the natural gas market, he explains.

"The system isn't designed to handle these sort of multiple standard deviation events from an inventory management standpoint, as there isn't enough storage capacity in the ground. This translates into lots of volatility in the short term."

In addition, 20 percent of the country's daily natural gas supply has moved to the Northeast, Raymond adds. "So when it gets really cold, the supply side is now affected due to well freeze-offs."

Natural gas usage is high in the summer too, and if it's unusually warm this year, the market could be in major trouble, experts say.

"The supplies of working gas — the stuff that is ready to go — are really low and could get dangerously low if the summer heats up too much," Richard Hastings, a macro strategist at Global Hunter Securities, tells MarketWatch.

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