After falling from $4.98, in June 2011, down to a low of $1.90, in April 2012, Natural gas has been one of the hottest commodities up 70% this year from the lows. This can be blamed on unseasonably hot weather increasing the need for the cooling agent. Also, temperatures in the Midwest have sustained triple digits for multiple days in a row and finally we are starting to see record supplies in storage start to level out and finally come down.
To truly get inside this market a trader needs to rely on just a few pieces of data. The best part of trading natural gas is a person hardly needs to worry about European Market conditions because the U.S. hardly exports this resource, so it is not concerned about global growth conditions.
The key pieces of data to watch are:
Total U.S. Natural Gas Inventories
Last week they came in at 3.19 trillion cubic feet. Keep track of the weekly fluctuations in this number. Ask yourself are inventories in storage growing or falling? Then pay attention to:
What are this week’s expectations? This week we are expecting a build of 26 bcf. Did the actual results come in higher or lower than this estimate?
Year of Year U.S. Stock Pile Changes
If this year we are expecting a build of 26 bcf, what were we expecting this same week last year? Was it 10 bcf and we are in a building phase again, or was it 80 bcf and we are rapidly using natural gas as it comes into inventory.
Is it unseasonably hot or is this a cooler summer with smaller energy demand?
The point is that natural gas is a product with very easy fundamentals to follow, and limited outside influences making it one of my favorite commodities to track. Look out for the potential setup for a continuation to the rally if this winter matches the summer’s intensity, becoming one of the coldest on record.
Series 3 Licensed
Senior Commodities Broker
Early in his career Phillip began trading his own account as a screen trader focusing on the metals, grains, and stock indices. He then became a Series 7 licensed financial consultant with A.G. Edwards. Later, he expanded his trading experience into a Series 3 licensed commodity broker with Investment Analysis Group. Most recently he was a senior market strategist at MF Global before joining RJO Futures in October 2011 as a senior commodities broker.
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