Natural Gas: Time To Let The Bulls Out Of The Corral!

| November 8, 2013 | 0 Comments

nat gas fireIt’s been a rough few weeks for anyone bullish of natural gas…

The seemingly abundant commodity fell from $3.80 mmBtu a few weeks ago, down to $3.40 in recent trading.  That’s a surprising downswing in what’s usually a seasonally strong period for natural gas.

Take a look…

Natural Gas

What’s going on?

In a nutshell, a surprisingly warm weather forecast decreased the possibility of big November storage withdrawals.  

According to the National Oceanic and Atmospheric Administration (NOAA), major Northeastern heating regions are expected to see above normal temperatures for the rest of the month.

As you may know, the first two weeks of November are usually when Summer inventory builds start decreasing.  And by the first week of December, we normally start seeing US storage levels go into deficit.  And the colder the temperatures are, the quicker it happens.

But with above average temperatures forecast for the next few weeks, there’s a growing possibility of the natural gas market staying in weekly surplus a little longer than normal.  

And that’s precisely why the price of natural gas has dropped so much in recent trading.

Now, as bearish as all that sounds, it’s actually the perfect time to get long this market…

You see, a similar pattern developed last year.  Temperatures in late November and early December were above average, just like they are now.  As a result, natural gas dropped to an unexpected low of $3.20 in late December.

But once January hit, everything changed…

Natural gas eventually ran to a mid-winter high of $4.40 once cold temperatures finally arrived in major US heating regions.  And bullish investors who had the foresight to buy the late December lows raked in hefty gains.

Will that highly profitable trend play out again this year?

Since we’re dealing with the whims of Mother Nature, it’s impossible to be 100% certain. 

But here’s the thing…

Yesterday’s EIA natural gas inventory report revealed storage levels only rose by 35 billion cubic feet (bcf) for the week ending November 1st.  That’s in-line with the five-year average build of 35 bcf.

But more importantly, at 3,814 bcf, current US inventories are 115 bcf below year-ago levels.  So while inventories are undoubtedly high, they’re still lower than where they were last year at this point.

And if the price of natural gas can surge like it did last Winter when total inventories were higher, there’s a very good chance of it happening again this year.

Bottom line…

The $3.40 to $3.20 mmBtu price area will likely mark the pre-Winter low for spot natural gas.   As a result, savvy investors should consider buying the US Natural Gas Fund (UNG), or similar natural gas based ETFs, to capitalize on rising prices.

Until Next Time,

Justin Bennett

Tags: , ,

Category: 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.