Will Natural Gas Be The Next To Rally?

It’s hard to get overly excited about natural gas when inventories are 22% above their five-year average and 31% above last year’s levels, and the gap between current inventories and historical averages has been rising steadily throughout the year.  However, while the fundamentals aren’t necessarily attractive, the historical relationship between the price of natural gas and oil is nearing record extremes.

With oil nearing 70 and natural gas below four, the current ratio between the two commodities is now over 18. Following prior periods when the ratio went above 18, while natural gas hasn’t always rallied, it has always outperformed oil.  Additionally, as we near the end of the second quarter, natural gas is entering what has historically been its best quarter of the year.  As shown in the chart below, the commodity's average return (using the front month futures contract) during the third quarter of the year has been 12.95% with positive returns 63% of the time.

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Comments

[Henrique Simoes]

Hey,

Are you sure this is right?

Has Natural Gas on average gone up in the 1Q, 2Q, 3Q and 4Q?

Cheers

PS: i have mentioned your site on my blog.

http://oiltradersblog.blogspot.com/

Keep up the good work guys.

[Jo]

So what's the best way to play it?

I thought about UNG but after being so severely underwhelmed by USO I'm not really interested in doing more with the single month futures ETF's.

LNG services? Like NGS? Or LNG miners/providers like CHK?

[j'adoube]

Guys, oiltrader's question begs the further question: Why don't you show de-compounded quarterly gains, not average gains, which are meaningless over a set of 19 quarters? If the vol is high, you can have consistently positive AVERAGE quarterly gains, and still lose a LOT of money.

Also, if the vol in the third quarters is much higher than the vol in other quarters (not unlikely with NG), then you could have poorer compounded returns from Q3 holds than other quarters, even though the average numbers look much better. (% of time positive doesn't cut it if there are huge negative outliers).

So let's do the work and show compounded returns. Average returns are deceptive.

[Matt Johns]

Check out http://www.enlightenedwallstreeter.com/
GREAT blog of blogs..

[Anish Poojara]

This could also mean that oil prices could crash instead of Natural Gas going up. If the world economy does not pick up and the Chinese bubble bursts sooner than expected then "all fall down".

anish poojara

[Royalty Investments]

Natural gas will continue to be a solid investment for years to come.

[Generic Viagra]

Hey, I think Natural Gas will be the best option in the near future. So, it is not strange that NG sales start coming up.