Natural Gas Futures Continue To Tumble On Investors (UNG, DGAZ, KMP, CHK, HAL)

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April 4, 2012 10:28am NYSE:DGAZ NYSE:UNG

Jared Cummans:  While a number of commodities enjoyed the first quarter of the year, natural gas continued to be one of the worst performing assets in 2012. NG’s losses have now amounted to over 30% on the year, with losses of 9.4% coming in the last five days alone. As the commodity continues to hit


new lows, investors and experts have been trying to call the bottom, only to watch it fall even further. Now that Spring is upon us, there is a good chance that natural gas is poised for even more losses, as warmer weather will curtail demand for NG-powered appliances, leaving high stockpiles and subsequently pushing prices into the dirt [see also 25 Ways To Invest In Natural Gas].

One of the biggest issues facing natural gas is supply; major producers and explorers have been finding more and more reserves by the day, pushing prices down. While many are calling this the fuel of the future, it begs the question as to whether or not it is a good investment for the future. With prices sitting so low, those who feel that natural gas will have to go back up sometime can buy in for cheap and hopefully reap the rewards of a recovery in this commodity. Still, others are predicting the price to drop even further, with some even posing the threat of NG going to $0, an unlikely but frightening situation for most investors. For those  looking to follow NG’s recent trend, a short position may  offer an  enticing opportunity, but also note that NG is extremely  cheap, which  may attract longer-term investors to the battered  commodity [see also ETFs To Bet Against Natural Gas].

Ways To Play

For investors who have a strong opinion on where natural gas is headed, or for traders looking to make a quick return, there are a wealth of options available. Perhaps the most direct method comes from the May NG Natural Gas futures contract offered on the NYMEX. The April contract is currently the most heavily-traded future and will offer the best liquidity. Traders may also be interested in the ETF, United States Natural Gas Fund LP (NYSEARCA:UNG), as the product changes hands over 7.6 million times each day. Note that UNG recently hit its historic low. For those looking to establish a short position, the new 3x Inverse Natural Gas ETN (NYSEARCA:DGAZ) will allow investors to make a bearish bet on the battered commodity. Income investors may be interested in an MLP like Kinder Morgan Energy Partners (NYS::KMP), as it will make an indirect play on natural gas while offering an enticing yield. [Related: Chesapeake Energy Corporation (NYSE:CHK), Halliburton Company (NYSE:HAL)]

Written By Jared Cummans From CommodityHQ  Disclosure: No positions at time of writing.

CommodityHQ offers educational content, analysis, and commentary on global commodity markets. Whether you’re looking to speculate on a short-term jump in crude or establish a long-term allocation to natural resources, CommodityHQ has the information you need.

 


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