Natural gas prices and exchange traded funds (ETFs) have taken some hits in the last few years. But can increasing demand from a robust economic recovery provide the needed stimulus to push gas prices back to profitable levels?
According to Don Dion of the Street, the natural gas market has or will bottom out soon. He says, “The beginning of the end of the slide in natural gas prices is upon us.” In light of his prediction, he recommends investing in ETFs such as First Trust ISE-Revere Natural Gas (NYSEArca: FCG) to catch the upswing.
The two forces behind the slide in gas prices have been supply and demand. Over the past two years, the global economic crisis crushed demand while on the supply side, exploration yielded new sources of production that were brought to market. When supply exceeds demand, prices fall. [Natural Gas ETFs Ready to Rumble?]
Recently, there has been an uptick in industrial and electrical demand, according to data from the Energy Information Administration, leading to higher total consumption than in January of last year.
Helping the cause is the fact that gas producers are beginning to shutter wells and move assets into oil, which is much more profitable at the moment. In April, the rig count declined for the first time in 16 weeks. Further, in the wake of the Gulf Coast oil disaster, it is possible that government will impose tougher regulations, which will further modulate supply. [Commodity ETFs for the Jim Rogers Bull.]
However, in the short-term, natural gas prices may continue to fall, according to The Star-Telegram. On Thursday, gas prices did just that, reflecting the fact that supply continues to outstrip demand.
According to the U.S. Energy Department, natural gas production in February rose 1.6% from January while underground storage levels grew by 83 billion cubic feet.
For more stories on natural gas, visit our natural gas category.
- United States Natural Gas (NYSEArca: UNG)
- J.P. Morgan Alerian MLP Index ETN (NYSEArca: AMJ): Holds companies involved in storing and transporting natural gas and other natural resources.
- Jeffries TR/J CRB Wildcatters Exploration & Production Equity ETF (NYSEArca: WCAT)
First Trust ISE-Revere Natural Gas (NYSEArca: FCG)
Sumin Kim contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.