Natural Gas - Go Long

NYMEX:NG1!   Natural Gas Futures
If we compare past economic trends from our past in terms of our natural gas price, there are obviously many factors that contribute to the price of Natural Gas as well as the timings of the swings. Most often, natural gas will see price increases more often in the winter if we see unexpected changes in winter weather making it a seasonal bet.

In this chart I have compared the federal funds rate, the SPX 500, and the price of natural gas . These factors, from historical perspective, attribute to substantial correlation especially when we are near a market top. The more instability has shown to greatly change the price of natural gas and we can see shortly after markets reach substantial highs, natural gas has dropped to substantially low prices, then, shortly after, they correct in a substantial move. Politics play a huge factors in the price as well with political candidates speaking about banning fracking, most likely, this will be a positive for the natural gas price. Given a ban to fracking, basic economics states that when supply decreases, while demand remains constant, we will see price increases to the area of supply deficiency. Global warming can be looked at as a negative for natural gas prices as well, but the world is not heating fast enough to reduce demand for natural gas . In fact, we are seeing a rise in natural gas power plants as an alternative energy source given its low price compared to other fuel sources. Any increased demand will need to be met by an increased supply, but if natural gas prices do no rise we may see energy companies enter bankruptcy. It is my expectation that natural gas will slowly become an increasingly monopolized industry, this will be due to the factors I have listed above, but mostly because smaller companies will lose profitability potential and be forced to sell their assets to larger companies that are more sustainable.

a monopolized industry will raise natural gas prices overall, but we will maintain smaller price swings heading into the future. The reason for this is because we will see a huge possibility that the United States will nationalize the natural gas industry similar to the way we treat utility companies who provide us energy.

In the short term, going long natural gas should reap great reward as our economic expansion wanes especially as we are entering another winter.

Please post a comment below if you would like to discuss this idea further. I do understand there are many other driving factors to the price of natural gas .


Excellent Analysis! I agree on all points!
Thanks for including macroview with NG forecast.

No problem. It is difficult to understand exactly what may happen, but we would need to see major changes to see natural gas prices to drop below $2 per bpu for the long term. The weighted risk of a fall downwards is a far greater risk than the possibility of a potential for upward movement, especially entering the winter. November -December will remain the best times for entry once we see prices normalize. Keep an eye on the national weather forecast!
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