Natural gas futures have proven even more buoyant than the stock market in the last few weeks – with the price of contracts for April delivery having risen nearly 18% in less than a month – and we’re looking at the near term intra-day high of $4.06 set back in November to see if the commodity can set a new 17-month high, reaching a level not seen since September of 2011.
Chart courtesy Finviz.com. Disclaimer: past performance is not necessarily indicative of future results.
But panning back out and looking at the big picture – despite the move back up from the lows in 2012, Natural Gas has remained stuck in a trading range of between $2 and $6 for going on 5 years now. We’re not in the business of long-term prognostication on markets, but we have a strange curiosity for what Natural Gas is doing (probably from our battle wounds around mid-08 when it shot up to $14) – and there are several potential developments that could send the market soaring or plunging:
- The issue of idle capacity is one we’ve heard several times. The idea is that plenty of companies are sitting on leases with natural gas potential, but haven’t started drilling because of how low prices have been. According to the Congressional Research Service, there are 20.8 million acres leased for oil and gas that are currently not in production or exploration. As prices rise, those areas could begin production, scaling up supply in line with demand to keep prices low.
- International trade could become a major player – the US exports some natural gas, but such activity is currently limited by a lack of capacity. But there’s a robust debate over whether the US should start ramping up efforts to export Liquefied Natural Gas (LNG). If US gas starts making its way to international markets in larger volume, the increased demand could put upward pressure on prices.
- And of course, there’s the outside chance of a ban on hydraulic fracturing (fracking), the drilling technique that led to the boom in the first place. It may seem unlikely, but several states – including New York – have already implemented moratoriums on the drilling practice. California is currently considering its own stance on the practice. A nationwide ban still looks very unlikely at this point, but even piecemeal efforts to stymie the practice could place limits on natural gas output.
Fortunately, with CTAs we’re not in the business of predicting the future – only responding to it. No matter which of the above scenarios comes to pass, we’re really just hoping for more sustained trends like this one.
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