Natural Gas, How low can it go

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gfrost

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I have had my eye on Natural gas futures (NG) for a while, and to be honest, didn't think they would break through the £3 level.
They are now at a record gap between crude prices, something has got to give soon, maybe they will cut back on gas production, any thoughts ?
Not noticed my LPG getting any cheaper though :(


Cheers

Graham
 
gfrost said:
I have had my eye on Natural gas futures (NG) for a while, and to be honest, didn't think they would break through the £3 level.
They are now at a record gap between crude prices, something has got to give soon, maybe they will cut back on gas production, any thoughts ?
Not noticed my LPG getting any cheaper though :(


Cheers

Graham
Click to expand...

Interesting you posted about this as I was just reading about it this morning :)

Seems like the market has lots of supply on its hands, and the contango makes picking bottoms in the futures market expensive. Here's an article I just found on reuters doing a quick search Investors buying gas stocks but more price pain seen | Industries | Energy | Reuters . There was one estimate in the article of prices dropping a little further even.
 
Nat Gas seems to be bouncing from longterm support at the moment and on big volume. I am watching for signs that it has put in a bottom, as this could be the next big bull market when it does.

The chart is for LSE:NGAS, which is an ETF. A break above that resistance line would be a good start.

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I've been looking at this since a non-investor friend told me how he was going to make a Gazillion dollars buying LSE:LNGA.

I'm not sure about Londons NGAS but in the US, the Natural Gas ETFs are not a good play.

UNG had a period of late where it was closed to new shares. That lead to a fairly hefty disparity between the actual price & indicative value. It was re-opened to new shares a few days ago and the gap narrowed (and people lost $$$). Fortunately, I was in & out of UNG before this happened.

GAZ is an ETN, and is closed to new shares too. GAZ still has the disparity but it's still tracking the underlying pretty well. Sooner or later GAZ will re-open to new shares and the price & indicative price will move closer together. I dumped GAZ on the 15th.

Both UNG & GAZ are under threat. Both UNG & GAZ invest in futures contracts. UNG accounts for such a large part of the futures market in natural gas that the powers that be want it closed down as they claim that excessive speculation is not good.

FCG is another ETF that doesn't track natural gas prices so well but is probably a better way to ETF your way into natural gas. It holds gas companies. I'm currently still long FCG. I'm also long a company called NGAS - which is more of a punt.

I think there's a lot of people been waiting for natural gas to confirm this turn. With UNG now able to buy more contracts, retail traders may be seeing this as a 'once in a lifetime' chance to make money from natural gas prices shooting back up to $12 and adding fuel to the fire.

I'm not sure where this current bounce is going - if the SEC tells UNG to close down, it's going to have a fair impact on the prices as they hold something like 60% of all futures contracts from what I read in the news.

The CFTC has already closed down DXO - Deutsche Banks crude oil double long ETN. If they shut down UNG, then it is possible people move to GAZ but it's also possible that they move to something the CFTC won't shut down - namely FCG which doesn't invest directly in commodities.

Interesting times ahead I should think. If UNG goes, I'm going to increase my FCG position size as I think it will ultimately benefit.
 
Interesting. I haven't heard anything about these issues in UK sold ETFs.

Your friend mentioned LNGA, which is a leveraged ETF, so I hope for his sake that the price keeps going up, coz any volatility can drastically effect the performance of these. The chart posted for NGAS is not a leveraged product.

I had a small position in NGAS which I have just sold as price comes into resistance. I don't like to hold these products for too long, as I am based in the UK and these are priced in US$. So any currency fluctuations will affect my position.

At the moment, the Dollar index is tanking through support levels, so I am not keen to expose myself to US$ that much as a strengthening pound will just eat away at any profit.
 
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Actually, I have known his wife longer than I have known him. I told her he should steer clear.

He saw LNGA's high of $32 & thinks it's going there again. At lunch I told him other ways to play gas & he just said, 'No - I want to buy LNGA. my friend told me to' - so he ended up buying nothing because his wife wouldn't let him !

For resistance, the only thing I'm paying attention to is resistance in the underlying commodity and I don't see any.

Read up on Contango & then on how exactly how NGAS invests in the underlying. Contango is going to give the Futures holding ETFs issues at rollover time, especially the one's who buy mostly near-term contracts.

IMO - the play isn't a technical one - the play is the CFTC shutting down UNG & the gas investors moving somewhere else. It certainly won't end up in London.

This can happen at any time - I may be wrong but if I'm right....
 
gfrost said:
I have had my eye on Natural gas futures (NG) for a while, and to be honest, didn't think they would break through the £3 level.
They are now at a record gap between crude prices, something has got to give soon, maybe they will cut back on gas production, any thoughts ?
Not noticed my LPG getting any cheaper though :(


Cheers

Graham
Click to expand...

Hi pls I would like to know whether there is any need from your side an buying Agent in China.thanks!
James
 
ETFs and commodities should be avoided at all costs as they're both complex and have a whole pack of expert vultures picking/stealing money from the ETF holders at every turn.

Some make an argument that this was why they were setup in the first place..........
 
http://ftalphaville.ft.com/blog/2010/10/27/384851/why-base-metal-physical-etfs-could-be-a-bad-deal/

on why etf's are a steal...

http://seekingalpha.com/instablog/6...ng-natural-gas-pricing-and-continued-drilling

this is great comment on nat gas in the states, need to know the dynamics of that market and the recent history. also back in 2002 it touched $1.85, so thats worth thinking about. the natgas/crude spread is not going to return to its long term mean, its going to set a new normal.

also, gas is a weird commodity, for instance, in the UK there is are pipes from mainland europe into and out of the country. two years ago they built a new one and tested it by opening the taps, within day and day ahead gas went negative as no one had any storage available.... nice one,

usually when storage is tight you can keep commodities in the ground where they are, the seeking alpha article probably shows why that is not a good option for lots of producers.... plus china has even more shale gas than the yanks!! good times
 
Notice no-one's posted on this for a while. So ... who's piling into Natural Gas now? Seems a good time to buy to me...
 
I want to speculate on US Natural Gas futures using a spread bettor. The spreads are insane though. Does anyone know which SB offers the cheapest i.e. smallest spread?
 
Natural gas, which accounts for about 23 percent of U.S. power generation, has fallen 12 percent in New York during 2011, extending a three-year drop, as improved technology for drilling in shale formations boosted production to the highest in almost four decades. Prices haven’t been so low in any winter since 2002, according to data compiled by Bloomberg. They may slide a further 12 percent in “coming weeks,” a Bank of America- Merrill Lynch report on Feb. 16 showed.
 
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