With Natural Gas down about -3% today and roughly -6% for the month, we were reminded of some former posts on the ‘other white meat’ of energy.
It was back in March that we noticed an interesting pattern emerging in natural gas futures, where the former high flier and poster child for volatility was actually acting as a new flight to safety investment- increasing on decidedly “risk off” days. And last April, we wondered if pending legislation being advocated by T. Boone Pickens might give the fuel a boost, as natural gas became more and more feasible as a reliable source of energy in the U.S. Between then and June, prices climbed steadily higher.
Our theory? Traders parked cash in the Natural Gas trade, knowing it could go significantly higher and thinking it couldn’t go significantly lower.
Well, turns out… it can (and has) gone lower, falling about 13% since September. While that may not be significant, it is definitely not insignificant.
Where the floor is in Natural Gas is anyone’s guess, as there is still a massive amount of supply and record production growth, but when looking at the market on a longer-term time frame and the 3.20 to 4.80 range it has been locked in for the past 2+ years, it sure seems like the bottom is somewhere down here. Whether traders continue to park money into Natural Gas during risk off times (not to mention whether they were ever actually doing that to begin with) remains to be seen.
What we do know is that the days of Natural Gas being the Keyser Soze of commodity markets- a spook story traders tell their kids at night to warn them off the crazy volatility in the markets- seem to be on the wane. If anything, Natural Gas has become a shell of its former self, with big moves now 2% to 3%, instead of the 10% and up moves of the past.
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