"The US natural gas storage cycle is fairly straightforward: More gas is consumed in winter than in summer because natural gas is a key source of heat," explains energy sector specialist Elliott Gue.
In his industry-leading The Energy Strategist, the makes a bullish case for natural gas as well as contract driller Nabor's Industries (NYSE: ).
"The year started off with gas storage levels falling in line with the average. In late February or early March that all changed: Storage levels jumped and eventually broke to a new five-year high.
"Needless to say, there is a large amount of natural gas in storage in the US and no immediate sign that this glut will be eliminated. Ample supply usually leads to weak prices or at least puts a lid on gas price advances.
"This inventory picture is the basis for all of the bearish arguments you'll hear surrounding natural gas prices.
"But a known fundamental is a useless fundamental; if everyone already knows about something, the news is probably priced into the market.
"To make a long story short, the demand picture for natural gas is weak -- primarily because of a massive slump in industrial demand.
"But the indicators suggest that industrial demand for natural gas will stabilize and begin to grow between now and year-end.
"Nabor's Industries is an outstanding play in the current environment. Contract drillers lease their drilling rigs to producers in exchange for a fee known as a day rate.
"Day rates rise with drilling activity and tend to fall when activity is weak; the fall in the US gas-directed rig count from 1650 to 675 has been a big negative for the stock.
"I recommended Nabor's Industries in May; my basic thesis was that the rig count decline was already priced into the stock.
"Moreover, Nabor's Industries continues to benefit from its ownwership higher-specification rigs that are designed for the shale plays; the company is positioned to benefit from growth in unconventional production as we exit the current down-cycle.
"And Nabor's has a growing international business. Because a good deal of international drilling activity targets oil, business should pick up in coming months. As earnings recover from the current depressed levels, the stock has the potential to double in price.
