Natural Gas Rising vs. Crude Oil

By Brad Zigler

Real-time Monetary Inflation (last 12-months): 1.8%*

Well, we've been back at the grind for a whole week now after our Labor Day sign-off to summer. Labor Day's a seasonal turning point, you'll recall from last week's piece, "NOW'S The Time (Relatively) For Natural Gas," in the energy cycle. In the fall, natural gas typically gains against crude oil.

This Labor Day, natural gas' price, measured by January futures, reflected a $7.596 per million BTU discount to crude oil. Over the past week, the discount eroded by 99 cents, or 13%.

Natural Gas Energy Discount Vs. Crude Oil

For futures spreaders—that is, those long natural gas and short crude oil contracts—trading on exchange-minimum margins, the shrinking discount has yielded a 32% return to date.

This season's discount shrinkage is fast-paced compared with last year's. In 2008, a historically large discount was trimmed by 7.3% in the first week.

Not every seasonal spread starts out favorably, though. In fact, over the past 14 seasons, the discount's been trimmed (or, in one year, the premium augmented) only six times in the first week.

Let's hope what begins well, ends well.

*Note: The monetary inflation rate is calculated daily and represents the change in our proprietary index over the last 2 months. We update long-term inflation in real time as well. Since 1999, the compound annual growth rate in our index is 5.4%.

Comments

[BullnBear:]

The fall natgas run seems to be starting well this year and if we get positive weather data such as “it’s going to get cold” instead of “unseasonably warm and the poles are melting” then we might have some sustainability.

We could get a positive catalyst for future usage out of Washington although right now they seem pretty busy with the financials and healthcare but you never know who may spring up with a natgas agenda.

Sep 16 09:51 AM