HardAssetsInvestor

Written by Julian Murdoch  |

November 15, 2010

The Energy Rally: More Than Just Crude Oil

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Crude's day-to-day gyrations may dominate the headlines. But oil's not the only energy commodity doing well right now. We look at two other outperformers, as well as one laggard that might surprise you.

 

Crude oil has headed higher lately—or, at least it was, before rumors arose that China might increase interest rates, which would stamp out energy demand from the world's largest oil consumer. Now oil's only up 9 percent since the beginning of the year.

Of course, just taking a year-to-date view glosses over the wild swings the commodity has experienced over the past 11 months:

 

 

From lows of almost $65 to highs just over $87, crude has been nothing if not volatile, making it tough to figure out which way it will go next.

But how does the performance of crude compare to other energy commodities, such as natural gas, uranium and coal?

 

Natural Gas

Of the three energy commodities listed above, natural gas turns in the most striking performance—although not necessarily in a good way.

Spot prices at Henry Hub are currently down 64 percent year-to-date. And that's much better than what I would have had to report if I'd written this article a couple of weeks ago:

 

 

Natural gas prices had begun to move upward as forecasts of lower-than-normal winter temperatures for the Northeast suggested increased heating demand. But, the end of last week showed that those gains were merely temporary.

The problem? The U.S. is very well supplied with natural gas. Natural gas inventory levels have consistently grown for months now, and last week was no exception; supply is now around 10 percent over the five-year average - a new record.

The only positive for natural gas investors is that the contango curve has flattened out compared with where we were six months ago:

 

 

The front-month roll may remain fairly steep, but the later contracts flirt with slight backwardation before they change back to contango—a radical change from six months ago. Meaning that all in all, the market seems to expect natural gas prices to continue to remain fairly steady throughout winter.