This Commodity Is On Fire!

Sean Brodrick

Wall Streeters will tell you that “there’s always a bull market somewhere.”

With gold and silver melting down and oil slip-sliding lower, this bull market has been increasingly hard for commodity investors to find.

Agricultural commodities are under pressure, too. But there are areas of strength — and one of those is very tradable: natural gas.

And that’s funny because, not too long ago, nat-gas was the commodity traders loved to hate.

Suddenly, nat-gas rallied by about 35% in two months!

You know what?

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I think it could go even higher. (Natural gas is the dark blue line at the top of the chart below.)

(Updated chart)

So, here is …

My Bullish Case for Natural Gas

#1: Drop in Storage.  Let me show you a chart from the Energy Information Administration, of nat-gas in underground storage. 

Current levels are represented by the blue line. Not only is it lower week-to-week, but stocks are way down from last year at this time and even below the five-year average.

Working Gas in Underground Storage

Compared with the 5-year Maximum and Minimum

Until recently, nat-gas in storage was ABOVE the five-year average. The less gas there is on hand, the more-likely prices are to go higher.

#2. Build-Out in Distribution.  One reason why there is less gas in storage is that more of it is being used by more customers.

Excluding gathering, storage and distribution lines, the U.S. added 4.5 billion cubic feet per day of new pipeline capacity and 367 miles of pipe, according to the EIA. 

#3. More Exports. U.S. natural-gas exports to Mexico have reached a 20-year high, according to the EIA. Here’s a chart on that …

Well, that trend sure seems clear. 

In hard numbers, U.S. natural-gas exports to Mexico grew by 24% to 1.69 billion cubic feet per day (Bcf/d) in 2012, the highest level since the data collection began in 1973.

With imports now accounting for over 30% of its total supply, Mexico’s natural-gas use is also at its highest level ever.

This is probably going to increase, as natural-gas consumption is rising faster in Mexico than natural-gas production.

How to Play This Trend

There are a bunch of Master Limited Partnerships and Exchange-Traded Products (ETFs and ETNs) that track natural gas.  They include the:

  • United States 12-Month Natural Gas Fund (UNL)
  • United States Natural Gas Fund (UNG)
  • iPath Dow Jones UBS Natural Gas Subindex Total Return ETN (GAZ)

If you choose to use one of these funds, do your own due diligence carefully.

For subscribers to my Global Resource Hunter investing newsletter and my Junior Resource Millionaire trading service, I prefer companies that are leveraged to natural gas — companies that pay nice dividends. 

And despite the run-up in natural gas, many of those companies are still incredible bargains.

Bottom line: You can mope about the damage that’s been done in some commodity markets. Or, you can seize the opportunities in front of you.

All the best,

Sean

P.S. I just gave my Junior Resource Millionaire members a red-hot energy pick with a fat dividend yield and the potential to soar alongside the price of natural gas. We’ve got a bunch of other energy plays with some nice open gains, and there are plenty more where those came from!

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Your thoughts on “This Commodity Is On Fire!”

  1. Dear Sean,
    I wish to let you know that I find the article “World War” disgusting.
    It seems to me that the sponsor of that article is prepared to say anything to sell its publications.
    World War III..Axis of Evil.. my God!
    We all know that this global village is getting smaller and we are all getting closer to each other, all working hard to make this a better world for all.
    This sort of irresponsible labeling is well, irresponsible, insulting and unprofessional to say the least.
    best,
    Jimmy from Hong Kong

Comments are closed.

Sean travels far and wide to seek out small-cap values in the natural resource sector. His journey started in New England. As a youth he worked on Mt. Washington, on the cog railroad that runs to the summit.