High daily volumes coupled with erratic and sometimes unpredictable movements have given natural gas a big name in the commodity world, along with a reputation as a risky investment. With NG jumping more than 20% year-to-date and still climbing, many analysts are looking for a spark behind these gains, and they’re wondering how long the trend will last [for more natural gas news and analysis subscribe to our free newsletter].
The US Energy Information Admission released a report earlier this week showing that storage figures of natural gas (NG) have dropped significantly in the last month, with the national average 32% lower than this time last year and 2.1% below the five-year average. These figures point to higher consumption of the commodity compared to this time last year. After a long winter and a relatively cooler spring in the Midwest and along the East Coast, it is not surprising to see that consumers are leaving the heat on later in the year. The result of cooler temperatures and increased demand have stimulated NG prices, which investors are taking as a bullish sign for the commodity.
Advances in hydraulic fracturing (fracking) as well as horizontal drilling have helped unlock huge reserves of natural gas within countries–such as the U.S. and Russia–that historically required external sources to meet domestic demands. This abundance of gas is so high that prices bottomed out early last year before bouncing back during the cold winter. Considered by many analysts to be one of the most promising avenues of energy development due to its relative cleanliness, abundance and inexpensive nature, many U.S. firms have already made efforts to update their technology to better exploit this surplus of domestic natural gas [see also Natural Gas In 2013: The Bull And Bear Case].
Ways to Play
Below, we outline several options for traders looking to take advantage of the upswing in natural gas prices.
- ISE-Revere Natural Gas Index Fund (FCG): This equal weighted ETF is comprised of firms that derive a substantial portion of their revenues from the exploration and production of natural gas, often acting as a more stable way to indirectly invest in the commodity itself.
- United States Natural Gas Fund (UNG): A much more direct ETF, UNG is made up of natural gas futures contracts and reflects the daily changes of the spot price of natural gas. The fund trades more than 5 million shares each day and is one of the most popular products in the NG space.
- Exxon Mobil (XOM): As the largest oil company in the world, with over $480 billion in annual revenue, Exxon is making strides towards being the largest producer of natural gas as well. Earlier this month the energy giant released plans to build the world’s largest natural gas refinery off the Western coast of Australia, which could be operational as early as 2020.
Disclosure: No positions at time of writing.