Tag Archive | "Natural Gas Trading"

Seasonal Natural Gas Trading Patterns


By

The Key To Seasonal Natural Gas Trading

Seasonal Natural Gas TradingNatural gas futures experience unique seasonal trading patterns that provide profitable trading opportunities.  The key to making money from seasonal natural gas trading patterns is to identify the historical trend directions that natural gas futures move in during different times of the year.  Once identified, sensible natural gas trades can be made based on the historical trading patterns, with some additional input regarding the long-term weather outlook and the natural gas supply and demand backdrop.  The historical trends provide trading guidance, while the long-term weather outlook and the natural gas supply and demand dynamics provide clues regarding when to make natural trading buys and sells, and how much risk to take when entering a natural gas trade.

Seasonal Natural Gas Trading Patterns

Seasonal Natural Gas Trading PatternsThe following are the four seasonal natural gas trading patterns that provide opportunities to make money trading natural gas futures or Exchange Traded Funds (ETFs) that derive their value from natural gas futures prices.  Keep in mind that these seasonal trading patterns do not always play out as expected, due to the many factors that affect natural gas prices; however, more often than not, the seasonal natural gas trading patterns do occur as expected and provide money making opportunities for those that trade natural gas.

  • Mid to Late Fall to Mid-Winter / Early Spring (Up Trend) – Natural gas futures typically bottom out in price during the middle to late fall in October or November, and then begin a long up trend in price, as cold weather takes hold, which causes demand for natural gas that is in storage for the heating season.  If the weather is colder than normal and/or natural gas supplies are tight, then the up trend can be quite significant.
  • Mid-Winter / Early Spring to Early Summer (Down Trend) – Natural gas futures typically top out in price during the middle to late winter, anywhere from January to March, depending upon when the coldest weather occurs and how much natural gas is in storage to meet heating demand.  Natural gas then enters the first “shoulder season” during the spring, as demand slackens and producers start to inject natural gas into storage.  Natural gas prices typically fall during the spring, as demand is weak and supply is plentiful, although the month of April is known to buck this trend as natural gas prices often rise in April, due to the rush to refill depleted storage.
  • Early to Mid-Summer (Up Trend) – Natural gas futures typically bottom out in price during the early to middle part of the summer season and begin an up-trend, as demand for natural gas increases from utility customers that use it to generate electricity to meet electricity demands from customers trying to cool their dwellings.  However, the summer has to be hotter than normal across a good portion of the continental United States to cause a significant increase in natural gas futures contracts during this timeframe.
  • Late-Summer / Early Fall to Mid to Late Fall (Down Trend) – Natural gas futures typically peak during the hottest part of the summer, during the months of July or August, and then begin a down-trend as the second “shoulder season” occurs during the fall.  Demand for natural gas is typically weak during this time period and supplies are abundant, which causes natural gas prices decrease until winter heating demand kicks in during the mid to late fall and the cycle starts over again.

ETFs To Trade Seasonal Natural Gas Trading Patterns On The Long Side

The following is a list of ETFs that can be utilized for trading natural gas futures on the long side, when natural gas prices are expected to increase.

  • 1X Natural Gas Long ETF:  United States Natural Gas (NYSE:  UNG) is a one times (1X) ETF that invests in near-month natural gas futures contracts that trade on the NYMEX, which are contracts for the month that is set to expire at the next expiration date and are usually the most actively traded futures contracts.
  • 2X Natural Gas Long ETF:  ProShares Ultra DJ-UBS Natural Gas (NYSE:  BOIL) is an ETF that is designed to deliver daily returns that are two times (2X) the daily performance of the Dow Jones-UBS Natural Gas Sub-index.  The index derives its value from natural gas futures contracts traded on the NYMEX.
  • 3X Natural Gas Long ETF:  VelocityShares 3x Long Natural Gas ETN (NYSE:  UGAZ) is an ETF that is designed to deliver daily returns that are three times (3X) the daily performance of the S&P GSCI Natural Gas Index ER, which is based upon natural gas futures contracts.

ETFs To Trade Seasonal Natural Gas Trading Patterns On The Short Side

The following is a list of ETFs that can be utilized for trading natural gas futures on the short side, when natural gas prices are expected to decrease.

  • 2X Natural Gas Short ETF:  Horizons BetaPro NYMEX Natural Gas Bear Plus ETF (OTC Pink:  HBNND) is an ETF that is designed to replicate two times (2X) the inverse of the daily performance of the NYMEX natural gas futures contract for the next delivery month.  It is a United States based security that derives its value from Canada based security that trades on the Toronto Stock Exchange under symbol HND.TO.
  • 2X Natural Gas Short ETF:  ProShares UltraShort DJ-UBS Natural Gas Fund (NYSE:  KOLD) – The fund seeks to deliver twice (2X) the inverse return of the daily performance of the Dow Jones-UBS Natural Gas Subindex, which derives its value from natural gas futures contracts traded of the NYMEX.
  • 3X Natural Gas Short ETF:  VelocityShares 3x Long Natural Gas ETN (NYSE:  DGAZ) is an ETF that is designed to deliver daily returns that are three times (3X) the daily performance of the S&P GSCI Natural Gas Index ER, which is based upon natural gas futures contracts.

Words of Caution When Trading Seasonal Natural Gas Patterns

Natural Gas Supply WellSeasonal natural gas trading strategies are fairly reliable, but can be affected by unanticipated supply and demand pressures in the natural gas futures markets due to unseasonable weather that either increases or decreases demand, changes in the economy, and changes in natural gas supply.  Therefore, traders should be aware of the risks associated with trading ETFs that derive there values based on natural gas futures, and understand that considerable losses can be incurred if a natural gas seasonal trade does not work out as expected.  In particular, leveraged ETFs that move at two or three times the amount of the underlying natural gas futures contracts are susceptible to large price swings.  Natural gas ETFs should only be used for short-term trading, rather than long-term investing, since the futures markets can affect long-term performance and returns of these ETFs in a negative way.

Stay up to date on stock trading ideas by getting on our FREE eMail list!

Posted in Commodities, ETFComments Off on Seasonal Natural Gas Trading Patterns

Natural Gas Trading Opportunities As Nat Gas Glut Ends


By

Natural Gas Trading Opportunities | Stay Ahead of the Curve

Natural Gas TradingMany natural gas trading opportunities lie ahead for traders that stay ahead of the natural gas trading curve.  The mass media has been pushing the story that North America is awash in natural gas, and it has become common wisdom that natural gas supplies in the United States will be ample for years to come and prices will remain low.  However, there are signs emerging that the natural gas glut may be drying up, as increased demand and declining output from some key natural gas producing regions have started to tighten up the supply and demand equation for natural gas.  Some market observers believe this is a trend that will continue in coming years and will send natural gas prices to higher trading levels.  This provides an interesting trading opportunity to trade natural gas on the long side.  It also opens up a number of investment options to capitalize on the increase in natural gas prices that would occur if the natural gas glut ends.

Natural Gas Trading Opportunities | Why An Upward Trend Reversal Is Likely

Natural Gas Fields
Traders and investors have become accustomed plentiful natural gas supplies in the United States during recent years due to hydraulic fracturing (fracking) techniques that have unlocked previously unreachable natural gas supplies.  Natural gas prices have reacted to this abundance of supply by falling to levels not seen in decades; briefly dipping below $2.00 per million British thermal units (MMBtu) during 2012.  This marked the bottom of a long-term downward trend in natural gas prices.  Traders and investors should be aware that it appears that another long-term trend shift in the natural gas price trend may be coming over the next few years, this time towards higher natural gas prices.

There are a number of reasons why natural gas prices may rise in coming years.  First off, after experiencing years of rapid production increases, natural gas production only increased marginally during 2013, when natural gas production in the United States grew by only 0.8 billion cubic feet per day.  That is an annual one percent growth rate, which is the smallest annual growth rate since 2005, before the fracking revolution boosted production levels.  For perspective, natural gas production increased annually by 3% during 2010, 7% during 2011, and 5% during 2012.

One of the factors that is likely to keep natural gas production in check is the fact that if it was not for the growing Marcellus shale natural gas producing region centered in Pennsylvania, production would have actually declined during 2013.  Other natural gas regions are experiencing reductions in output, as wells that were once producing plentiful natural gas experiencing significant output declines.

At the same time as natural production is flat-lining, natural gas demand is increasing.  Low natural gas prices in recent years have led to a large number of natural gas conversions from heating oil to natural gas by home and business owners.  Additionally, many electricity generating facilities that have switch from using coal to using natural gas in recent years, due to lower natural gas prices and increased environmental regulation.  Another factor driving increase natural gas demand is an industrial renaissance in the United States.  Finally, liquefied natural gas (LNG) facilities are being built in the United States to export natural gas to other countries.  Export of LNG will increase demand for domestically produced natural gas.

Anemic natural gas supply growth and increasing demand will likely lead to higher natural gas prices.  This presents natural gas trading and investing opportunities to take advantage of an expected rising trend in natural gas prices.

Natural Gas Trading Opportunities

Assuming the long-term uptrend in the price of natural gas materializes over the next several years, there are a number of natural gas trading strategies that can be used to make money during the rise in natural gas prices.  One trading option to consider are long-oriented natural gas Exchange Traded Funds (ETFs).  These funds generate their gains when natural gas futures contracts increase in price.  They are designed to increase from one to three times the increase in natural gas futures contracts.

1X Natural Gas Long ETF:  United States Natural Gas (NYSE:  UNG) is a one times (1X) ETF that invests in near-month natural gas futures contracts that trade on the NYMEX, which are contracts for the month that is set to expire at the next expiration date and are usually the most actively traded futures contracts.

2X Natural Gas Long ETF:  ProShares Ultra DJ-UBS Natural Gas (NYSE:  BOIL) is an ETF that is designed to deliver daily returns that are two times (2X) the daily performance of the Dow Jones-UBS Natural Gas Sub-index.  The index derives its value from natural gas futures contracts traded on the NYMEX.

3X Natural Gas Long ETF:  VelocityShares 3x Long Natural Gas ETN (NYSE:  UGAZ) is an ETF that is designed to deliver daily returns that are three times (3X) the daily performance of the S&P GSCI Natural Gas Index ER, which is based upon natural gas futures contracts.

Natural Gas Investment Ideas

Natural Gas ProfitsIf a long-term uptrend in the price of natural gas takes hold, there are several ways investors can make investments in natural gas to profit from the increase in natural gas prices.  The following are some natural gas investment ideas.

One of the safest ways to invest in natural gas is by buying companies that build and operate natural gas transmission lines and other natural gas transportation infrastructure.  Demand for these companies services is increasing as demand for natural gas increases.  What makes these companies safer investments than other companies in the natural gas sector is because their revenues and earnings growth is more predictable since they earn their money by transporting natural gas rather than by taking exploration and production risks.

Spectra Energy Partners, LP (NYSE:  SEP), Williams Companies, Inc. (NYSE:  WMB), and Kinder Morgan Energy Partners, L.P. (NYSE:  KMP) are three of the leading natural gas pipeline companies in the United States, with pipeline networks that stretch across large areas of the country.  These companies not only offer stabile revenues and earnings, but also healthy dividends in the 4% to 7% range.

If you would like to invest in the fastest growing natural gas producing region, the Marcellus Shale region in and around Pennsylvania, two companies offer exposure to this fast growing region.  These companies are Rex Energy Corporation (NASDAQ:  REXX) and Cabot Oil & Gas Corporation (NYSE:  COG).

Stay up to date on stock trading ideas by getting on our FREE eMail list!

Posted in Investing, Stock TipsComments Off on Natural Gas Trading Opportunities As Nat Gas Glut Ends

Natural Gas Trading Strategies


The Tools to Implement Natural Gas Trading Strategies

Natural Gas Trading StrategiesThere are a number of natural gas trading strategies that can be implemented to trade natural gas on both the long and the short side.  Natural gas trading strategies utilize natural gas futures and Exchange Traded Funds (ETFs) that derive their valuation from natural gas futures (see Buying and Selling Futures).

The following is a list of the most popular ETFs that can be utilized for trading natural gas futures on both the long and short side.

  • United States Natural Gas (UNG) – An ETF that is designed to replicate the performance, after expenses, of natural gas.  UNG invests in near month natural gas futures contracts traded on the New York Mercantile Exchange (NYMEX), which are the futures contracts that are closest to expiration.
  • Horizons BetaPro NYMEX Natural Gas Bull (HNUZF.PK and HNU.TO) A two times leveraged long ETF that trades in the United States on the Pink Sheets and in Canada on the Toronto Stock Exchange (TSE).  Through the use of financial instruments, HNUZF.PK / HNU.TO replicates two times the near month natural gas futures contracts traded on the NYMEX, after expenses.
  • Horizons BetaPro NYMEX Natural Gas Bear (HBNNF.PK and HND.TO) A two times leveraged short ETF that trades in the United States on the Pink Sheets and in Canada on the TSE.  Through the use of financial instruments, HBNNF.PK / HND.TO replicates the inverse of two times the near month natural gas futures contracts traded on the NYMEX, after expenses.

Seasonal and Economic Natural Gas Trading Strategies

The value of natural gas futures are affected by a wide variety of forces, including supply and demand, seasonal factors, and economic factors.  Unlike the crude oil futures markets, the natural gas markets are regional in nature, and are not affected directly by world events that cause the price of crude oil futures to fluctuate greatly.  This makes the natural gas futures easier to trade than crude oil futures, since a natural gas futures trader can focus on domestic United States events.

There are two primary natural gas trading strategies, seasonal and economic.  Both of these natural gas trading strategies are affected by broader supply and demand issues concerning the domestic natural gas markets.  Natural gas prices have been in a long term downtrend over the past five years due to two supply and demand forces.  First, supply of natural gas has increased significantly in the United States over the past five years because of the rapid increase in drilling for natural gas in shale formations that were once thought to be incapable of producing natural gas.  Second, demand for natural gas has lessened in the United States in recent years, due to the economic slowdown that began in late 2007.

Despite the long term downward trend in natural gas prices over the past five years, there are still ample natural gas futures trading opportunities that take advantage of the seasonal and economic natural gas futures trading strategies.

The seasonal natural gas futures trading strategy is rather simple.  Buy natural gas futures either directly or through an ETF in fall, during what the industry calls the shoulder season.  The fall is a time when natural gas demand is low and natural gas futures prices are usually depressed.  Sell the natural gas futures in the middle of the winter, when natural gas demand is high due to heating demand and natural gas futures prices are usually elevated.  Another seasonal natural gas futures trade can be made by shorting natural gas futures in the middle of the winter and covering the short in the spring, when demand for natural gas reaches another seasonal low point.  A third seasonal natural gas futures trade, which is not as reliable as the first two, involves buying natural gas futures in the spring and selling them in the summer, when demand for natural gas generated electricity for cooling is often high and natural gas futures prices are often elevated.

The economic natural gas futures trading strategy is a bit more complicated, since it requires timing the economic cycle correctly.  Buy natural gas futures either directly or through an ETF during an economic downturn, when natural gas demand is low and natural gas futures prices are usually depressed.  Sell the natural gas futures when economic activity picks up, when natural gas demand increases and natural gas futures prices are elevated.

The seasonal and economic natural gas trading strategies are fairly reliable, but can be affected by unanticipated supply and demand pressures in the natural gas futures markets due to unseasonable weather and changes in the economy.

Stay up to date on Natural Gas Trading Strategies by getting on our FREE eMail list!

Posted in CommoditiesComments Off on Natural Gas Trading Strategies


Sign Up for Text Message Alerts

By clicking 'Join Now', you agree to our Disclaimer and Privacy Policy. We are 100% Anti-Spam and will never share or sell your information!

Follow Us on

Facebook

Twitter

Google+

Pinterest

Trade With…


© 2020 MJ Capital, LLC | All rights reserved