Sean Brodrick: Wall Streeters will tell you that “there’s always a bull market somewhere.”
With gold and silver melting down and oil slip-sliding lower, this bull market has been increasingly hard for commodity investors to find.
Agricultural commodities are under pressure, too. But there are areas of strength — and one of those is very tradable: natural gas.
And that’s funny because, not too long ago, nat-gas was the commodity traders loved to hate.
Suddenly, nat-gas rallied by about 35% in two months!
You know what?
I think it could go even higher. (Natural gas is the dark blue line at the top of the chart below.)
So, here is …
My Bullish Case for Natural Gas
#1: Drop in Storage. Let me show you a chart from the Energy Information Administration, of nat-gas in underground storage.
Current levels are represented by the blue line. Not only is it lower week-to-week, but stocks are way down from last year at this time and even below the five-year average.
Working Gas in Underground Storage
Compared with the 5-year Maximum and Minimum
Until recently, nat-gas in storage was ABOVE the five-year average. The less gas there is on hand, the more-likely prices are to go higher.
#2. Build-Out in Distribution. One reason why there is less gas in storage is that more of it is being used by more customers.
Excluding gathering, storage and distribution lines, the U.S. added 4.5 billion cubic feet per day of new pipeline capacity and 367 miles of pipe, according to the EIA.
#3. More Exports. U.S. natural-gas exports to Mexico have reached a 20-year high, according to the EIA. Here’s a chart on that …
Well, that trend sure seems clear.
In hard numbers, U.S. natural-gas exports to Mexico grew by 24% to 1.69 billion cubic feet per day (Bcf/d) in 2012, the highest level since the data collection began in 1973.
With imports now accounting for over 30% of its total supply, Mexico’s natural-gas use is also at its highest level ever.
This is probably going to increase, as natural-gas consumption is rising faster in Mexico than natural-gas production.
How to Play This Trend
There are a bunch of Master Limited Partnerships and Exchange-Traded Products (ETFs and ETNs) that track natural gas. They include the:
- United States 12-Month Natural Gas Fund (NYSEARCA:UNL)
- United States Natural Gas Fund (NYSEARCA:UNG)
- iPath Dow Jones UBS Natural Gas Subindex Total Return ETN (NYSEARCA:GAZ)
If you choose to use one of these funds, do your own due diligence carefully.
And despite the run-up in natural gas, many of those companies are still incredible bargains.
Bottom line: You can mope about the damage that’s been done in some commodity markets. Or, you can seize the opportunities in front of you.
Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Nilus Mattive, Claus Vogt, Ron Rowland, Michael Larson and Bryan Rich. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Andrea Baumwald, John Burke, Marci Campbell, Selene Ceballo, Amber Dakar, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.
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