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Natural Gas Fundamentals

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Basic Fundamentals

What Market Fundamentals Can Affect The Natural Gas Futures?

In free market economies, supply and demand is the primary enabler for price movement. Any outside forces that affect supply and demand eventually affect prices. Natural gas is one of the more volatile commodities markets. This is evident in the high volatility premiums that natural gas options have. When you are considering a trade in the natural gas market some of the basic fundamentals that you should consider are:

1. Weather The heaviest demand for natural gas is during the winter months. Colder than normal winters can increase demand for natural gas. Summers are usually the lowest demand periods for natural gas. However, extremely hot periods during the summer can spike demand for natural gas. Keep in mind most season demand variations are already priced into the market. (Beware of brokerage firms that try to sell you on far out of the money call options as a sure bet.)

2. Hurricane Season Natural gas futures will react quickly to any tropical storms that move into the Gulf of Mexico. Most of the natural gas operations are in and along the Gulf and they are susceptible to damage and production losses. Hurricane Katrina is a prime example where natural gas prices rose to all-time highs due to the destruction.

3. Crude Oil Natural gas and crude oil prices are somewhat related because natural gas and crude oil are substitutes in consumption and also complements, as well as rivals, in production. Another factor linking the natural gas and crude oil markets is liquefied natural gas (LNG). Most LNG contracts are indexed on oil prices, directly linking natural gas and crude oil prices. Consumption of LNG is expected to top consumption of natural gas delivered by pipeline in the United States by 2015.

4. Inventory Reports There are two major inventory reports that are helpful in your research and trading of natural gas futures and options. The US Energy Information Administration Weekly Natural Gas Storage Report, and the Monthly Underground Gas Storage Report. These reports are very closely watched by market participant to get insight into any changes in the supply/demand environment.

These are just some of the basic fundamentals to keep in mind when you are considering a trade in the natural gas market. Therefore, before opening up a commodity account to trade natural gas you should consult with a licensed commodity broker that follows the natural gas market to discuss investment strategies.

Click here to contact a commodities broker with experience in the natural gas market.

Commodity trading is not suitable for everyone. The risk of loss in trading can be substantial. This material has been prepared by a sales or trading employee or agent of Van Commodities, Inc. and is, or is in the nature of, a solicitation. This material is not a research report prepared by Van Commodities, Inc. Research Department. Please view our Risk Disclaimer.

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