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Natural Gas: Is Now the Time to Make a Play?


Seasonal trends may offer investors an entry point for a nice short-term position in the next few days.

Natural gas is one of the most popular commodities in the world and it often ranks among the CME Group's most traded futures contracts. However, the commodity had been stuck in a rut since the 2008 recession before it finally saw some relief as 2013 opened. From natural gas's peak to the beginning of the year, the fossil fuel had declined by more than 92%, as a number of macroeconomic factors weighed on the commodity. Just as it finally picked up steam in 2013, NG sputtered into May, dipping more than 9% through the first week of the month.

Natural Gas in Limbo

As is true for nearly every commodity, natural gas is well-known for its cyclical behavior on an annual basis. The spring months present a tough period for the commodity as temperatures have risen since winter, but they are not yet hot enough to spark heavy demand. As the summer months see temperatures rise around the country, demand for air conditioning devices drives natural gas prices higher and stockpiles lower.

This spring, however, has taken its time to get going. NG has taken a hit in the last few days as cooler-than-average temperatures have tempered consumption and created bigger stockpiles of the energy source. While the temperatures may have hurt NG in the short run, the current five-week lows are setting up traders with a big opportunity.

Natural Gas Seasonal Patterns

Looking back at NG's 20-, 10- and five-year seasonal trends, the commodity almost always starts a run-up in early May. All three time periods also peg the commodity as making a high sometime in mid to late June before tapering off for a few months. NG typically makes another low in early September and then enjoys a nice spike for a few weeks as cooler weather begins to set in and demand sees a healthy jump.

For any traders looking to hop in on the seasonal trends, the next few days may offer an excellent entry point for a nice short-term position. Of course, those looking to make a play will have to be ready to stomach the volatility NG offers, as it is not uncommon to see its prices swing by 1% or more in a single session. Keep a close eye on each Thursday's EIA Natural Gas Inventory report as well as the forecast for the weeks ahead to help time your position correctly.

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Editor's note: This article by Jared Cummans was originally published on Commodity HQ.
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