Energy Investing: Gambling on Gas - dummies

Energy Investing: Gambling on Gas

By Nick Hodge, Jeff Siegel, Christian DeHaemer, Keith Kohl

Years ago, you could almost always depend on the seasonality of the natural gas market. Some energy investors swear by one rule: Buy low in the summer and sell high in the winter. They use a seasonal approach to trading natural gas.

Usually, the weakest time of year for natural gas demand was during the hot summer months. Conversely, heating during the cold winter months historically marked the peak times for demand. Keeping a ten-day weather forecast can help you prepare for temperature changes that can cause a short-term price swing.

The rise of unconventional production from shale formations and natural gas locked in impermeable rock, called tight gas, across North America has caused a supply glut, while pushing prices to decade lows.

The U.S. Energy Information Administration (EIA) publishes a weekly report on natural gas storage levels. This report can keep you updated on weekly draws on working gas storage. Other important data points to digest are long-term trends you can determine by comparing current natural gas storage levels to the five-year average. This report is released on Thursday mornings on the EIA website.

Trading natural gas futures in today’s market requires an extraordinary amount of attention. Stepping away from a trade for a few hours can have a devastating effect on your position. For this reason, most retail investors stick with other investment options, such as exchange-traded funds that track a commodity’s price.