Natural gas bulls have one more reason to keep their head up. Natural gas prices seasonally rally starting around now. Usually, at least.
Interestingly, they have already started to, despite the extraordinary factors keeping them down this year. HardAssetsInvestor is arguing that it’s finally time for Natural Gas to to rally relative to oil.
HAI: But now that the last summer holiday barbecue’s been extinguished, the natural gas season begins anew. At least for energy spread traders. Harken back to our article “What (Or When) Is Up With Natural Gas?” for the specifics of a trade that pits natural gas against crude oil futures. Over the past 15 years, this rather mechanistic three-month spread (long gas futures against short crude oil, done to energy equivalency) has produced profits 80% of the time.
How does the seasonal natural gas vs. oil spread usually work?
There’s a fairly reliable seasonal spread, a favourite of energy traders, that capitalises upon this late-year jockeying in energy-equivalent costs. Trading it over the past 15 years by pitting long natural gas against short crude oil, spreaders averaged a $12 per barrel-equivalent gain with 80% reliability (12 out of 15 years).
The spread’s fairly straightforward. You simply buy natural gas futures on the first business day of September while simultaneously selling short sale crude oil futures. Hold the position until the second Monday in December, then exit.
As an example of seasonality, take the chart below via Seasonal Charts.