This unique commodity has a dual demand season based on hot and cold weather temperatures. In the United States, natural gas, coal, and refined petroleum products are used as substitutes in electric power generation. Electric power generators switch back and forth, preferring to use whichever energy source is less expensive. Natural gas is also a cleaner burning fuel source, and as crude oil stubbornly remains elevated despite sluggish global growth, the less expensive product is natural gas.
Buying the November natural gas future on or about July 24th and holding until about October 21 has worked thirteen times in the past twenty-three years, for a success rate of 56.5%. Mild winter weather and ample supplies have lead to a glut in natural gas in recent years resulting in losses for this trade in five of the last seven years. As natural gas stocks are about 14% lower this year than last and temperatures and electricity demand are forecast to soar, this trade could prove profitable again this year.
In the chart below, natural gas’s seasonal tendency has shifted recently with an initial bottom in late July and a second bottom around mid-September. Ample production coupled with few hurricane-related disruptions has mitigated the usual air-conditioning driven spike in demand. But, as we exit the summer season, weather can still play a role in September, when hurricanes can and have threatened production in the Gulf of Mexico.
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