CNBC says it's just short covering in the front month. You could always spread Sept/Oct for a "lower" risk trade -- looks like -.25 x -.21 on IB right now. Not a big believer in CNBC but there you have it.
If you want to know why natural gas rallied, look no further than last week's storage report. The net storage on the week was negative, the first time that has ever happened during the warm months since storage statistics have been kept. It's unprecedented. This weeks report (covering last week's injections) will probably show near zero storage as well, particularly in the West. And with another heat wave shaping up this week, inventories could be down to historical averages going into peak hurricane season. Two weeks ago, natural gas was half as expensive as oil per BTU. The only reason for that was the record storage inventory. Without inventories hanging over the market prices will be more seasonally typical relative to oil and relative to winter natural gas quotes. Martin
Penny stock fans take a look at AMEP.OB.They have significant Barnett shale acreage and control two drilling rigs ,but huge amount of shares issued.
Brigham exploration ( BEXP ) is a producer and explorer of NG. They drill in partnership with many other companies.
Martin, What's the "normal" ratio per BTU for gas/oil. What would be a seasonally typical price point. I have to admit I know nothing about this market -- but would like to learn. Thanks, Sam
energy ratio is 6 mcf per 1 barrel. So if oil is at $72, gas should be at $12. But of course because they aren't interchangable (you can't run 99% of our auto fleet on NG), NG has storage issues of its own, etc. its not simply wise to buy NG and short crude until that ratio corrects. Perhaps in the long term (years), the ratio will reign supreme.
Several times this year I have bought NG and sold crude as a spread, and it has been my most successful strategy this year. But when I did the ratio was more like 12-1 and 13-1. I would not put it on for much less than that. Very rarely has the ratio been over 10-1, and when it has, it wasn't for long.
Good trade. Someone was asking about seasonality. Summer prices are always lower than winter because of storage costs. I'd put on a QM/QG spread at 9:1 or so in the heating season. Always watch how the rolls will affect your QM/QG spreads, particularly in February, March, October, and November. It sucks to get stuck between a loss you don't want to eat and a contract you don't want to roll. Martin