Natural Gas Volatility Explodes…. Again!

Not three weeks ago, the Natural Gas market exploded in volatility, with its 3 day Average True Range (ATR) jumping 200% after being stagnant for about 4 years. That all seemed to be over after a pull back in prices with some warmer weather in the US… but the sneaky colorless, odorless gas has snuck back up over the past few days – and pushed through its past highs today going over $6 , something not seen by investors since 2009 {past performance is not necessarily indicative of future results}.

Natural Gas(Disclaimer: Past performance is not necessarily indicative of future results)
Charts Courtesy: Finviz.com

This shouldn’t surprise us, after Natural Gas has been moving up and down at great lengths, with 9 out of the past 18 days showing a gain or loss bigger than +5% or -5%, as traders essentially traded the extreme winter weather and higher heating bills via Nat Gas futures. So why the  8% jump today? Chicago is downright balmy today (in the mid 30’s – something we haven’t seen since November). Maybe it has something to do with the recent winter weather pummeling the southern states, that don’t typically need Natural gas this time of year, but Reuters offers another suggestion; that the winter blast across the U.S. is far from over.

“The 11-15 day forecast points to “ongoing colder than normal conditions” over much of North America, said meteorologists at MDA Weather Services in Gaithersburg, Maryland.

Temperatures in Chicago will reach sub-zero (Fahrenheit/below minus 18 degrees Celsius) at the end of nextweek while New York temperatures will reach into the teens, according to the MDA forecast.”

Whatever the reason – Natural Gas has kept it volatility up at 5 year highs in a return to its former glory days as a widow maker for professional (Amaranth, anyone) and individual investors alike.

Back Adjusted 3 day ATR(Disclaimer: Past performance is not necessarily indicative of future results)

But is this just because of the current weather conditions and forecast, or is this a more secular change in Natural Gas volatility. Are the good old days back for good?  To check that out, we took a look at the historical volatility of the March 2014 futures contract versus the January 2015 contract.  The Mar ‘14 contract is obviously looking at what is likely to draw down supplies right now (the current weather), while the Jan ’15 is more of a long term bet on what supplies will look like a year from now (a long enough time that it is impossible to predict what the weather will be like).

March 2014 Contract

2015 Nat Gas Contract(Disclaimer: Past performance is not necessarily indicative of future results)

Whoa… March!  So you’re the culprit.  You can see that while there is a slight increase in volatility for the year from now contract (and it too is at levels not seen since 2010), the real action is in the March (now) contract. One of our followers on Stocktwits suggests that today is just the start of what’s to come, at least for the front month contract.

Stock Twits NAt Gas reply

Either way, we Chicagoans would prefer to ditch the sub-zero temps (spring will come…right?), but we might be able to bare a couple more days of #Chiberia if it means we can continue to cheer on CTA’s in this long Natural Gas trade.

PS – for a full breakdown of Nat Gas stories, see here:  Nat Gas Linkfest

Write a Comment

Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, RCM's own estimates of performance based on account managed by advisors on its books, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.

Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, RCM's own estimates of performance based on account managed by advisors on its books, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.