HardAssetsInvestor

June 21, 2012

Sell Spikes In Volatile Natural Gas As Fundamentals Move In Bullish Direction

Details

Volatility in the natural gas market creates trading opporunities.

Natural gas continued to live up to its reputation as the most volatile of commodities last week. Prices spiked dramatically off the lows from earlier this month amid forecasts of simmering summer temperatures across the United States and a gradual, but consistent reduction in the storage surplus.

NATURAL GAS

Price action in natural gas has been in-line with our expectations, which call for range-bound fluctuations between $2/mmbtu and $2.75. Given that prices are near the top end of that range currently, we would be more inclined to sell rather than buy.

Even so, the fundamentals for gas are still moving in the right direction to rebalance the market. Today, the EIA confirmed that storage levels continue to increase at a slower-than-normal rate.

Operators injected 62 billion cubic feet into inventories last week, below the 98 bcf of last year and the 89 bcf five-year average.

Inventories in the U.S. now total 3006 bcf, which is 652 bcf above the year-ago level and 658 bcf above the five-year average (calculated using a slightly different methodology than the EIA).