2012 has only had a handful of trading days, but that has been plenty of time for natural gas prices to plummet. So far this year, NG futures have tanked by nearly 15% in just 11 total trading days. With futures sinking to end 2011, many speculated that prices would see some relief with cooler temperatures hitting across the U.S., but it seems that the weather has yet to let up. Though many areas have gotten their fair share of cold days, the constant fluctuation between cold and relatively warm temperatures has only steepened NG’s decline. Yesterday saw the price of gas dip below $2.5, levels not seen for well over five years [see also 25 Ways To Invest In Natural Gas].
Since hitting their high mid-way through the recession, gas prices have been on a downhill run whose angle has only increased this year. Many energy experts are calling natural gas the fuel of the future, but for the time being it is certainly not posing itself as an investment for the future. Currently 2012′s worst performing major commodity, NG seems to have insurmountable obstacles to overcome before it can work its way back up. Some analysts are predicting that prices can’t go much lower, but investors have heard that when NG hit $4, $3, and now $2.5, so it is difficult to know when to hop back in this trade, if at all. For those looking to follow NG’s recent trend, a short position may offer an enticing opportunity, but also note that NG is extremely cheap, which may attract longer-term investors to the battered commodity [see also 12 High-Yielding Commodities For 2012].
Ways To Play
For investors who have a strong opinion on where natural gas is headed, or for traders looking to make a quick return, there are a wealth of options available. Perhaps the most direct method comes from the February NG Natural Gas futures contract offered on the NYMEX. The February contract is currently the most heavily-traded future and will offer the best liquidity. Traders may also be interested in the ETF, United States Natural Gas Fund LP (UNG), as the product changes hands over 13 million times each day. Note that UNG recently hit its historic low. For those looking to establish a longer-term position, the E-TRACS Natural Gas Futures Contango ETN (GASZ) seeks to eliminate contango with a unique strategy. Income investors may be interested in an MLP like Kinder Morgan Energy Partners (KMP), as it will make an indirect play on natural gas while offering an enticing yield [see also Three Commodities Dividend Lovers Must Own].
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Disclosure: No positions at time of writing.