Natural Gas - An Opportunity To Build Wealth
Many futures traders have ignored this contract and concentrated on crude oil, but high crude prices will drive gas higher as traders switch to this cheaper alternative and a triple digit profit opportunity could unfold.
For traders with a long term outlook buying and holding natural gas futures could yield great gains.
Let’s look at the reasons for higher gas prices that are compelling and listed below
The treatment for high oil prices has a cure a switch to natural gas!
Natural gas competes in many of the same markets as oil and particularly in the power-generation market where many facilities can switch between natural gas and oil.
Natural-gas futures have dropped around 60% from their record level of $15.78 per million thermal units back in mid-December. Crude on the other hand has seen a decline of about 8% from an all time high of $75.80 a barrel from late April.
With $70-plus crude and $6 natural gas, it is not hard to see why gas will become the fuel of choice.
The low cost Gas
The low cost of gas points to plenty of upside potential longer term.
The price of July natural gas tapped a low of $5.94 on June 8, a level it hadn’t seen since late January of 2005. High U.S. supplies in storage have been keeping a lid on prices.
They’re above 2.3 trillion cubic for week ended June 2 and at their highest level on record for the time of year.
But prices spiked by 14% alone last week so why are prices going higher?
Why Gas is moving higher
The answer is perceived future demand and problems in the supply chain.
Several utilities are already in the process of switching from oil to natural gas for period peak generation this summer to cut costs.
High storage levels are there for now but how long will they last? This is what traders are considering now - there looking to the future not the current supply and demand situation.
There isn’t enough production in the U.S. and Canada to meet peak winter demand for the fuel so it must be stored to meet the demand. For now, U.S. natural-gas supplies are 23% above the year-ago level and 38% above the five-year average - But traders are not considering now their looking at the future
An Important Market Bottom
Prices spiked 14% last week on the anticipation of hot weather throughout the US and we also have the hurricane season which could be one of the most active in recent years.
At the moment gas is bullish despite near term high storage of gas and this may seem unusual but it happens in all markets:
Important market tops take place without any real change in the fundamentals and this is where human psychology comes into play and looks not at the fundamentals now but in the future
Let’s look at the longer term reasons gas will go higher
1.Prices are cheap relative to crude oil and switching will take place.
2.Gas is produced in the USA and is not influenced by geo political concerns that surround crude oil.
3.Gas is an environmentally friendly fuel.
4.Gas long term supply will struggle to keep pace with demand.
5.Warmer summers and colder winters of recent years should continue keeping demand high.
6.The hurricane season is forecast to be one of the most active ever and could affect rig production.
Natural gas has already started moving higher without any real change in the fundamentals and with the 6 reasons above all looking bullish natural gas could become one of the most bullish commodity markets into year end.
Many traders have not considered the potential for natural gas but the reasons above are compelling and traders looking for a long term buy and hold strategy could pile up some nice profits.
