The winter months typically see demand kick up for natural gas, which is often reflected in the higher prices. But last year’s unseasonably warm winter put downward pressure on NG and its related investments alike. In fact, the United States suffered the warmest 12-month span in its history (as far back as records have been kept) between 2011 and 2012, making it very difficult for this commodity to get going. Unfortunately, the first part of the coming winter does not look to be shaping up much better [for more natural gas news and analysis subscribe to our free newsletter].
Forecasters are predicting “that early December will be warmer than originally forecast for most of the U.S.,” writes CNBC. The news sent NG tumbling on Monday, as warmer weather will mean less use for the fossil fuel in homes across the country. While many may be fretting about the next few weeks, NG may actually be poised for a good entrance in the next few weeks, as it is also predicted that the coming winter as a whole will be much colder than the previous one.
Time To Buy?
As always, timing will be key in making an NG play, but given December’s warm forecast compared to an overall colder winter than the previous one, this is certainly an enticing opportunity. With prices and related funds taking a hit in recent sessions, the time to buy may be soon, as this commodity typically reacts to the 10-day forecast rather than what is happening here and now. That means that if there is a sudden cold snap predicted for the end of December next week, prices will shoot up then and there as opposed to when the cold snap actually occurs [see also The Definitive Guide to Fracking].
If you have a bullish sentiment for NG this winter, the next few days may be the perfect entry point as the warm weather hangs around until we hit the depths of winter. Below, we outline three ways to make a play on an NG rally.
- United States Natural Gas Fund LP (UNG): When it comes to NG futures, few products (including the futures themselves) have more liquidity than this ETF. While it is not a good representation of the commodity over the long term, it is an effective trading instrument for positions of a shorter length.
- 3x Long Natural Gas ETN (UGAZ): If you really want to put your money where your mouth is, this fund offers a 300% leverage on NG futures. Be advised that this kind of strategy is not for the faint of heart and will be extremely volatile.
- ISE-Revere Natural Gas Index Fund (FCG): This ETF takes a different approach to investing in this fossil fuel, offering exposure to companies that derive the majority of their revenues from NG production and exploration.
Disclosure: No positions at time of writing.