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Tickers in this Article: UNG, FCG, CHK, XOM, CVX, RRC, COG, EOG
New York, May 17th ( - Until recently, saying that natural gas prices were in a tailspin was to put things kindly. Death spiral was perhaps the more accurate description of the awful fate suffered natural gas futures. From the 2008 highs, natural gas prices in the U.S. recently traded below $2 per 1,000 cubic feet. At one point in mid-April of this year, the U.S. Natural Gas Fund (NYSE: UNG), an ETF that tracks NYMEX-traded natural gas futures, had lost about 96% of its value since its 2007 debut. Well, things changed and they changed in a hurry. Despite a glut of natural gas supplies thanks to record levels of production at various U.S. shale plays over the past few years, natural gas prices have spiked recently helping UNG to an unprecedented surge of almost 30% in the past month.

It's easy to see why. Earlier this month, the U.S. Energy Information Administration cut its 2012 production outlook while boosting its demand forecast. The EIA now sees a 2012 natural gas production increase of 2.9 billion cubic feet per day, or 4.4%, to 69.14 billion cubic feet per day. That's still a record, but it's also below EIA's April forecast that estimated output of 69.22 billion feet per day.

Demand is expected to climb to 3.4 Bcfd, or 5.1%, from 2011 to 70.17 Bcf daily. EIA's previous estimate showed total demand in 2012 averaging 69.6 Bcfd, Upstream Online reported, and those bullish figures come after a government reported showed slowing production in February.

Bullishness for natural gas futures has yet to carry over to the equities side. The First Trust ISE-Revere Natural Gas Index Fund (NYSE: FCG), an ETF chock full of major U.S.-based natural gas producers, has actually fallen 9.4% in the past month, though it can be argued that is because energy stocks in general have been taken to the woodshed.

Chesapeake Energy (NYSE: CHK), the second-largest U.S. natural gas producer behind Exxon Mobil (NYSE: XOM), remains an outlier. The company should be benefiting from rising natural gas prices, particularly since it has vowed to dramatically lower production of the fuel, but the firm is so ensconced in self-inflicted controversy that shares plunge on almost daily basis. It appears that only a takeover might save Chesapeake and that rumor mill has started to churn with Chevron (NYSE: CVX) being the top pick among energy sector analysts to acquire Chesapeake.

Speaking of potential takeovers, due to falling stock prices, there are now several credible takeover targets in the natural gas arena. Range Resources (NYSE: RRC) has frequently been mentioned as buyout candidate. Cabot Oil & Gas (NYSE: COG) and, to a lesser extent, EOG Resources (NYSE: EOG) also have the look of takeover bait.

For now though, natural gas is best played from the long side with UNG. Take a wait-and-see approach to FCG and individual natural gas equities.

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