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Investing in natural gas with ETFs

Natural gas prices have a history of moving higher from August to December. But what are prospects this year?

Thackray’s 2011 Investor’s Guide notes that U.S. natural gas prices have recorded exceptional seasonal strength from Aug. 1st to Dec. 21st during the past 15 periods. The trade was profitable in 12 of the past 15 periods. Average return per period was 42.3 per cent. The sweet spot is from the end of August to the end of October. A word of caution, though. Natural gas prices are volatile. Returns during the past 12 profitable periods were substantial, but losses during the three losing periods also were substantial.

Seasonality by the sector is influenced by one minor and one major annual weather event that occurs each fall. The minor event is warm weather that increases demand for natural gas used to produce power for air conditioning. The major event is hurricanes entering the Gulf of Mexico that frequently curtail supply. The Gulf of Mexico is the largest gas producing area in the U.S.

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