As natural gas futures drop below $2 per mmBTU for the first time in over a decade, now is a good time to discuss some of the fundamentals underlying the move lower, and explore some potential trading strategies for the commodity.

Fundamentals

A drop in demand caused by mild winter conditions across the U.S., along with a record level of new supply from nascent shale gas technology (fracking) are the main economic drivers that have pushed natural gas prices 34% lower this year.

Regarding demand, the NOAA recently released a report finding 15,000 state and local temperature records were broken in the last month alone, making it the warmest March ever recorded in U.S. history. Over half of U.S. households rely on natural gas for their winter heating needs. The above average temperatures weighed heavily on demand, which fell nearly 20% below winter averages. This decrease in demand also pushed

The combined effects of record money supply, removal of quantitative easing, China's trade deficit, and a quickening U.S. economic recovery will end the multi-year bull market in bonds, and the sell off could be swift.

Taking a look at M2 money supply, recent data shows yet another increase, and that we are approaching a record $10 trillion in total U.S. currency in circulation. As past periods of high inflation have taught us, once price escalations have begun it tends to accelerate quickly, making it difficult for the Fed to put the monetary genie back in the bottle using ordinary tightening measures. While nagging unemployment, falling home values, and excess capacity has so far dampened core inflation, recent economic, housing, and labor market reports all suggest the slow grinding recovery may start to quicken in the coming months. Recent FOMC comments from the Fed show a round of QE3 is increasingly