Monday, September 14, 2009

Natural Gas shoots up 11%

The futures are up $0.267 (9.02%) at $$3.227. From FT Alphaville:

Natural gas took on a sudden life of its own on Monday, shooting up more than 11 per cent in London afternoon trade:

Natgas - FT

Here’s how that move looks over a longer duration:

Natgas - FT

As can be seen that follows a 15 per cent move higher on Thursday and a 9 per cent correction lower on Friday...MORE

Earlier FTA had said:

Natural gas comeback not exactly what it seems

Natural gas staged a small comeback last week, inciting some speculation within the blogosphere that a renewed bull market might be under way in the commodity. Evidence for this, say commenters, is the now heady height of the gas-to-oil ratio above the 20x mark.

Natural gas - FT

Be that as it may, we would caution there are still some factors that investors should consider before rushing into in natural gas. Namely, the massively steep contango present in the term structure of the commodity — as can be seen in the chart below from Goldman Sachs:

Natural Gas forward curve - Goldman Sachs

While we are certainly no advocate of futures being a forecast of prices, there is no escaping the fact that at over $5/mmBtu for the January contract on September 10, natgas strength is priced in for the 2009/2010 winter. This means that anyone hoping to ride the rally higher by investing in today’s front-month prices — say by investment in an exchange-traded-fund whose methodology depends on that very model — would, even if prices converge a bit, accumulate losses on the ride higher unless prices outperformed $5/mmBtu by January — or the contango abated....MORE

The hazards of real-time reporting.