AMP Capital Buys Natural Gas on ‘Imminent’ Price Gain

By Shani Raja

May 29 (Bloomberg) -- AMP Capital Investors, with $95 billion under management, is selling oil futures to buy natural gas contracts in anticipation of an “imminent” price spike.

The price of crude oil, which has almost doubled from last year’s December low, and natural gas, which has continued to tumble, has diverged so much that consumers will switch to the cheaper energy source, said Nader Naeimi, a Sydney-based strategist at AMP Capital, a unit of Australia’s biggest provider of pension plans.

“The price of natural gas is so low at the moment, and production’s been cut back so much, that a slight rise in demand is enough to trigger a huge price spike,” Naeimi said by phone today. “While other commodities have rallied, natural gas has been left substantially behind in the energy complex.”

Speculation of a global economic recovery has driven oil prices in New York up 93 percent since Dec. 19, when futures settled at their lowest since February 2004. The price of natural gas has slumped by more than a quarter over the same period.

The number of oil and natural gas rigs operating in the U.S. has more than halved from a two-decade high of 2,031 in September as the recession eroded demand, according to data published last week by Baker Hughes Inc.

“Spot is trading at much lower levels than long-dated natural gas contracts,” said Naeimi. “That means the market is expecting prices to rise. Everyone’s storing natural gas to sell at a higher price in the forward market. You also have a push for clean energy globally, which should benefit natural gas.”

Earlier this month, AMP Capital upgraded its holdings of commodities to an “overweight” allocation from “underweight,” taking money from its cash reserves on speculation demand will strengthen. AMP also holds heating oil and gasoline in its energy portfolio.

In August, Naeimi said surging commodity prices had hit a “choking point.” Crude oil, which reached a record $147.27 a barrel on July 11, fell to as low as $32.40 a barrel in December.

The global recession, caused by the collapse of the U.S. mortgage market and an ensuing credit crisis, eroded worldwide demand for commodities last year, driving prices of both copper and crude oil down more than 50 percent.

Natural gas is the most “undervalued” commodity, investor Marc Faber said in an interview with Bloomberg Television on May 27.

To contact the reporter on this story: Shani Raja in Sydney at sraja4@bloomberg.net.