Natural Gas: The Only Bullish Commodity Trade That’s Working Right Now…

| April 19, 2013 | 0 Comments

natural gasNo doubt about it, this week has been a disaster for commodity bulls.  Gold, silver, platinum, palladium, copper, crude oil, feeder cattle… they all took steep dives in recent trading.

However, much of this bearish trading is likely linked with margin call selling in the gold market. 

Desperately underwater gold longs had to raise cash quickly to get right with their brokerage.  As a result, just about everything was subjected to immense selling pressure in recent trading.

But there’s one commodity shrugging off the recent bearishness with ease…

… natural gas.

The same asset that’s been the bane of commodity bulls since mid-2011 is the go-to asset for bullish profits in 2013.  

But before I cover the current state of affairs in the natural gas market, let me give you a quick recap…

As you may know, the summer of 2011 was when things started getting bad for natural gas.  Abundant supplies pushed US inventory levels into the stratosphere.  As a result, prices went into the gutter.   In fact, by April 2012 the commodity was trading under $2 mmBtu, the lowest price point in a decade.

My how times have changed since then…

Natural gas is currently trading at a $4.38 as I write.  That’s the highest price since July 2011 and up 130% from the 2012 lows.

What’s going on?

A dramatic decline in the US dry-gas rig count mixed with a long-lasting March cold spell is taking a big toll on storage levels.   The once woefully oversupplied market has now become undersupplied.

In fact, yesterday’s Energy Information Administration (EIA) natural gas storage report revealed inventories are 1,704 billion cubic feet (bcf).  That’s 31% below inventory levels last year at this time and 4.2% below the 5-year average.

While this was the first week of storage additions this Spring, the actual level of injection was much less than analysts had projected.  In fact, most analysts had pegged a 40-bcf injection going into yesterday’s report. 

Instead, they got a shockingly low 31-bcf addition. 

Take a look at what that did for prices…

Natural Gas

As you can see, natural gas shot up 4.7% yesterday to $4.40 mmBtu.  

Folks, it’s becoming abundantly clear that the massive, multi-year decline in the dry-gas rig count has caught up with the market.  Even though there’s still plenty of associated gas production throughout the US, the increase in natural gas demand is gobbling it up.

What’s does the remainder of 2013 have in store for natural gas?

We’ll likely see a slight pullback in prices in coming weeks as warmer temperatures arrive and storage levels build.   I believe the new floor for natural gas is now in the $3.90 to $4 mmBtu area.

However, things will really get interesting in July and August… 

If the US gets a hot summer like last year, we could easily see gas at $5 by fall.

A great way to trade natural gas price swings, without exposing yourself to complicated and risky futures contracts, is via the US Natural Gas Fund (UNG).

Until Next Time,

Justin Bennett

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Category: Energy, Natural Gas

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.