All in on natural gas

Natural gas has been rising in the past week.  Today, it broke above US$4, trading at US$4.14 after rising 1.27% at 9:30am.  There are many reasons to go long on natural gas right now.

First, the price of natural gas has been tumbling in the past 12 months.  With brent crude currently trading at US88.79/barrel, the ratio between oil and natural gas prices is as high as 21.45 to 1. 

Second, seasonality will likely see natural gas trading much higher in the coming months.  Consumption of the commodity rises every winter, as consumers in North America use natural gas to heat their homes.  This always results in a spike in prices.

Finally, this is expected to be a colder winter then usual worldwide.  A few weeks ago, European scientists predicted that this will be the coldest winter in Europe in 1000 years.  La Nina is also expected to provide North America with a colder winter than normal.  Signs of this colder-than-usual weather have already emerged.  For example, the Toronto area recorded the coldest Halloween in 10 years.

I expect natural gas to hit US$6 before April 2011, and I have positioned myself and clients into the ETF HNU listed on the TSX.