Natural Gas, will it still follow oil??

Discussion in 'Commodity Futures' started by marketsurfer, Jul 11, 2008.

  1. looks like a good time to get into natural gas....

    The world's eyes are watching oil prices. Oil is hitting record after record on its march higher. The world's economies are closely tied to oil's fate as evidenced by tumbling stock markets when oil advances. Oil is the lead commodity in what is known to future traders as the "energy complex". Natural gas is a component of the energy complex and follows oil very closely. It's often overlooked by traders; however, with the advent of NYMEX miNY natural gas futures, natural gas has become an easily accessible market for traders. This article will provide a brief overview of the natural gas futures market and explain why I believe there is potentially an opportunity right now in this market.

    Natural gas is created primarily from methane which is created from the decomposition of non-fossil organic material and in oil fields. It takes heavy processing to turn it into the usable form of natural gas. Its uses included creating Hydrogen, as a power source, and as a fuel product for heating/cooking in consumer's homes, among other uses. 25% of all energy used in the United States is attributed to natural gas. The futures contract is based on physical delivery to what's called "The Henry Hub" in Louisiana. This is where 16 major pipelines come together. These pipelines are supplied by sources all over the Midwest and Eastern United States.

    The MiNY futures contract represents 2500 million British Thermal Units or BTU's as opposed to the full size contacts that trade in 10,000 million BTU's. It trades in all listed months over the next 5 years and the minimum price change or tick is $12.50/contract. The maximum size imposed by the exchange is 999 contracts and MiNY's contracts symbol is QC. It takes $2784.00 in margin to trade one contract, although several brokers have lower .......
  2. any actually trade the miNY gas?

    looks like a killer trade right now, anyone in here?
  3. Natural gas is the real, but quiet bull market of 2008. Unlike crude oil, it has not received too much attention from the media.

    The main reason for the price increase is technology advancement. Traditionally, due of its composion, natural gas couldn't be transported over long distances, such as the Atlantic. The new technology allows natural gas to exported overseas at a cost that makes economic sense. The price of Natural gas in Japan for instance is at least double. With the US market being open to exports now it's just a matter of time till prices in US will catch up with the ones practised elsewhere.

    Playing long natural gas with a longer time frame in mind and enough capital to withstand possible pullbacks is the way to go now :D
  4. Natty was up over 80% at its peak, and is still +57.5% even though it is 1.75 under the high from two weeks ago. It had been the best performing commodity of 2008, and it is due to a combination of factors including LNG. The Japanese were paying very high prices for natural gas last fall after the big earthquake they had knocked out the world's largest nuclear reactor run by TEPCO, which is right around the time LNG flows to the US dried up. At the time natural gas prices here were significantly lower, but I am not aware of them paying double the US price at any point in time. Earlier this year they made headlines by agreeing to pay $16/MMBtu for the next 10 years on a long term deal with Indonesia (deal was set at oil price parity of $100/bbl.), and Spain has paid close to that level due to a drought there, but I am not aware of prices being double what we pay anywhere right now. UK gas prices for next winter are very high, having recently topped out north of $20, but those are future prices and not reflected in the current spot price.

    It has been a strong market to be sure, and we still have the rest of the tropical season to contend with, but it is natural gas, the hallmark of volatility, so trade with caution.
  5. I'm curious:

    What was the technology leap? Was it containers on the ships or something.
  6. Before 2003 NG was a regional commodity, it could be transported only by pipe lines. The development of cheaper methods of supercooling and transporting the fuel across the ocean in liquified form, which requires only 1/600th the space, made the global trade take off.
  7. Thx. I appreciate the interesting posts...