Natural Gas's Silent-But-Deadly Rally

In case you didn’t notice, natural gas has jumped 15% in a day. It’s the continuation of a sharp 30% rally from just about a week ago. After taking a pummelling, things are starting to turn around for this oil-fungible commodity.

Today, the Energy Information Administration (EIA) reported a smaller than expected increase in storage data. Also, as we highlighted a few days back, seasonality favours natural gas going forward.

WSJ: Natural gas has suffered because of dramatic increases in supply from unconventional sources that coincided with a severe weakening in demand due to the recession and drop in industrial demand, a big consumer of natural gas. But there’s a “lag effect” between the drilling slowdown and output, and that should start to “materialise in a meaningful way” in the next few months, he said.

Clearly the market has low expectations for natural gas, given that, as shown below, storage remains well above the normal range it should be this time of year.

On a related note, might the infamous natural gas ETF United States Natural Gas (UNG) be lagging the rally? It is up only 11%.

Natural Gas Range Chart

Read the full EIA release here.


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