Natural gas is perhaps one of the most cyclical commodities in
the space, as its demand and usage are heavily tied to seasonality.
As a result, its price cycles for the past few decades have been
somewhat predictable, even though it can be quite volatile day to
day. Both of those factors combine to make it one of the most
popular commodities traded on the market. In 2013, however, it
looks like natural gas may be moving away from its normal trend.
Natural Gas Falling Out of Line
For the last two decades, the trend for natural gas has brought a
hefty increase just as summer draws to a close. Notably, September
is used to seeing marked gains. From there, the commodity has
typically hit a plateau or a slight pullback, only to surge higher
during the October/November period. This year, however, natural gas
has yet to fall into that trend. Since the beginning of September,
the commodity is actually down more than 5%.
The drop comes as a big hit to traders, as many had been
shoring up big bets
prior to the usual seasonal jump. Instead, the
United States Natural Gas Fund
(NYSEARCA:UNG) has seen outflows of $21 million since the beginning
of the month, compared with the inflows of over $120 million from
June to August. The diversion from its typical trend comes from a
culmination of factors, with the potential to set up natural gas
for a strong winter period.
Weathering the Weather
Natural gas is dominated by weather patterns, as its demand and
consumption are heavily tied to heating and cooling devices in
homes across the country. After a relatively mild summer,
temperatures across the country are hovering in a not-so-sweet spot
where homes do not have much use for cooling or heating devices,
driving down demand and driving stockpiles higher. The most recent
EIA Natural Gas Storage report indicated a rise of 87 bcf from the
Another factor playing against natural has has been a relatively
mild hurricane season. Hurricanes that often blow through the Gulf
and key producing regions of the country have been known to knock
out production and send prices on a temporary tear. 2013′s
hurricane season has been one of the mildest in recent memory, and
while that certainly is welcomed news for citizens of those
regions, it has had a slight impact on natural gas prices.
Despite prices sitting at lows for the time being, the commodity
could be gearing up for a strong winter run. Should this winter be
a cold or even average one, natural gas will have more room to rise
given its current suppression. While the weather is impossible to
predict with absolute certainty, it will be important for traders
to keep an eye on forecasts and average temperatures across the
country, as they could present a great buying (or selling)
opportunity for this fossil fuel.
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Editor's note: This article by Jared Cummans was originally