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Polar Vortex Meets Natural Gas Glut

10 January 2014 in Trading Ideas

Cold enough for ya?

If you reside anywhere north of the Mason-Dixon line (and even below that), it’s safe to assume your answer earlier this week — if you’re jaw muscles were thawed, that is – was “Yes, that’s plenty, thanks.”

When all was said and done, and it mostly was by the end of the week, the remarkable arctic blast ended up bringing dangerous wind chills of at least 30 below zero to 19 US states.

On Tuesday, for example, the high in Detroit stretched to -1, just the fourth time in recorded history that the high temperature failed to reach zero.

Fortunately, we had all that natural gas supply to meet the higher demand. In fact, gas inventories fell by 860 billion cubic feet during the last seven weeks of 2013, exceeding the five-year drop for the period by 68%, according to data from the US Energy Information Administration.1

What’s more, the cold snap has no impact on the new realities on the production side, where new efficiencies continue to take hold. The EIA said late last year that US marketed gas production would expand for a seventh straight year, rising 1.4%. Gains are being driven by new wells at the Marcellus shale field in the Northeast US.

natural gas motifBy midweek, however, gas-price futures were headed lower on forecasts that the arctic blast that boosted demand was to be followed by milder weather across the US in the near term.2

The warmer weather expected for the next couple of weeks could bring natural gas supply and demand back in check, while providing a boost to investors looking to capitalize on a longer-term oversupply of natural gas.

The Natural Gas Glut motif is up 4.3% in the past month and has climbed 35.1% in the past 12 months. During those same time periods, the S&P 500 has gained 1.8% and 28.5%, respectively.


1Naureen S. Malik, “Natural Gas Rises as Coldest US Weather in Decade Boosts Demand,” Bloomberg.com, Jan. 6, 2014, http://www.bloomberg.com/news/2014-01-06/natural-gas-rises-as-u-s-cold-outbreak-spurs-heating-demand.html, (accessed Jan. 8, 2014).

2Naureen S. Malik, “Natural Gas Drops as Warmer Weather to Follow US Arctic Blast,” Bloomberg.com, Jan. 8, 2014, http://www.bloomberg.com/news/2014-01-08/natural-gas-rebounds-as-record-cold-u-s-weather-boosts-demand.html.

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