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Albert Sung is the author of Correlation Economics, monitoring breaking economic news on a day to day basis. He started investing in 2008 because of the economic crisis and holds a masters degree in chemical engineering. Previously, he worked several years as a process engineer at Ashland, a... More
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Correlation Economics
  • Natural Gas To Rise 10%: Buy Chesapeake Energy 0 comments
    Oct 11, 2012 3:00 PM | about stocks: CHK

    Here is a little thought experiment.

    Why are futures traders paying so much each month to roll over their natural gas contracts? The annualized cost is currently 178%, this is a high rate.

    Together with a contango curve from $3.4/MMBTu today to $3.6/MMBTu a month later and $3.7/MMBTu two months later. We can say that traders are already pricing in a rise of 10% in the coming two months. Why do I say that? Because the natural gas costs 10% a month right now to roll over. So the natural gas price should at least go up 10% a month for people to earn money.

    So you can be guaranteed that the natural gas price will rise. What do you do then? You buy cheap natural gas companies in the short term, for example Chesapeake Energy (NYSE:CHK).

    Stocks: CHK
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