A Commodity Speculation

A neglected sector that has gotten my attention is natural gas. The last few months have shown resurgence in crude with the global economy stabilizing and demand picking up. Crude has more than doubled from the lows, with natgas lagging far behind.

For me, the risk on natgas is on the upside. In other words, I don’t want to risk missing a big upturn. Prices have already fallen from $12 down to under $4 — which is a $40,000 move per futures contract. For my taste, the upside potential far outweighs the chance of the downtrend continuing much lower. Gas cannot go to zero. It will always have some value, and many fundamentals can change the present landscape of low, low prices.

Thankfully, very few ‘sheeple’ are grazing on the green, green grass from natural gas demand. Significant supplies are used to produce the fertilizer necessary to feed the world. Natgas also provides much of the electricity to cool our cities in the dog days of summer.

Plus, the hurricane season is always a wild card that can add risk premium. Any weather disruption can spark an explosion in prices. Katrina and Rita sent prices to all-time highs just a few short years ago. You don’t go shopping for an umbrella after the rain starts.

Think of your reaction to possible oil plays back in February when no bottom was in sight — that’s how natgas feels now. Being ahead of the energy curve is the place I want to be. When things don’t develop as planned, the losses at lower levels are manageable. Probability is on our side that eventually natgas prices will move up.

The Daily Reckoning