Natural Gas had another miserable day on Friday to conclude a miserable week. The interesting aspect of natural gas is that it has not participated in the huge commodity rally in 2009. Market commentators postulate that poor demand due to a weak economy is the culprit. Its funny that the same could be said for copper, oil, zinc, etc. But that did not stop these commodities from rising 100-150% in 2009. However natural gas is the only commodity held back by fundamentals and large supplies.
Furthermore, I am told that natural gas supplies are high and that this will keep prices low for a long time. Lets take a look at the charts.
You will clearly see that natural gas supplies are within the 5yr average. So why has the Federal Reserve's free money not found its way to natural gas? Why has natural gas fallen from $6 to below $4?
The only answer I can up with is that natural gas is a local commodity and cant be easily stored by traders and speculators. Oil for example can be stored anywhere--even in my garage. These easily stored commodities have been gobbled up by market participants and financed by the Fed's monopoly money. Natural gas on the other hand has to be held in specially designed storage tanks. Another problem for natural gas is that transporting natural gas is difficult and requires a pipeline.
So whats the future for Natural Gas
Because I am long natural gas I naturally expect natural gas to fall to below zero (only 4 dollars away) in the immediate future. On a serious note I would prefer to be a buyer of natural gas and a seller of crude oil. Natural gas is historically cheap and will eventually rise (no one knows when). It may take some time though.
Black Swan Insights