Why is US natural gas important to traders?
First discovered millions of years ago, natural gas is made from organic matter, formed by the remains of dead animals and plants. Trapped deep under the earth’s surface, natural gas consists mainly from methane and some hydrocarbon gas liquids and non-hydrocarbon gases.
Playing a crucial role in producing electricity, natural gas serves as an effective and inexpensive fuel for industries, governments and households worldwide.
Although the fossil fuel had been known since ancient civilisations, it was first commercialised as a fuel source during the Industrial Revolution. In 1785, natural gas extracted from coal was firstly used to light streets and houses in Britain. In 1821, the first natural gas well was explored in Fredonia, New York.
US natural gas market trading hour
CME Globex provides electronic trading for 24 hours/6 days a week:
- Sunday to Friday, 18:00 – 17:00, with a 60-minute break each day.
- Monday to Thursday, 00:00 – 21:00 and 22.05 – 00.00
- Friday, 00.00 – 21.00
- Sunday, 22.05 – 00.00
How to trade US natural gas
The presence of the natural gas commodity in an equity-only portfolio can lower the volatility, due to the absence of a correlation between the energy commodities and other asset classes.
- Safe Haven
Commodities can serve as a safe haven in the times of global economic uncertainty and market turbulence, because they can retain their value.
- Inflation Hedging
Commodities’ intrinsic value is independent from currencies. They will often hold their value, even if a currency falls during the period of inflation.
- Speculation on natural gas prices
Commodities may be highly volatile, experiencing wild price swings. Trading natural gas CFDs is one way to try and profit from drastic natural gas fluctuations.
Trading natural gas requires some consideration, due to the market’s occasional high volatility and a wide choice of available instruments, from natural gas derivatives, such as futures and CFDs, to gas and oil company stocks.
Although, natural gas suffers less price fluctuations than oil, trading natural gas can still be volatile resulting in a high degree of risk. The chance of making large profits goes hand in hand with the risk of large losses.
How to trade US natural gas CFDs
One of the easiest and most popular ways to trade natural gas is with CFDs.
A contract for difference (CFD) is a type of contract between a trader and a broker in order to try and profit from the price difference between opening and closing the trade.
Most CFD trading providers allow traders to speculate on the price of natural gas futures contracts, however the contact sizes are often much smaller than standard future contracts. For example, a natural gas CFD order can be for 500 mmBtu, instead of a standard futures contract of 10,000 mmBtu.
Trade US Natural Gas Spot CFD
In addition, CFDs give you the opportunity to trade natural gas in both directions. No matter whether you have a positive or negative view of the natural gas forecast and predictions, you can try to profit from either the upwards or downward future price movement.
Moreover, trading natural gas through CFDs is often commission-free, with brokers making a small profit from the spread - and traders trying to profit from the overall change in price.
Additionally, the 10% margin offered by Capital.com means that you have to deposit only 10% of the value of the trade you want to open, and the rest is covered by your CFD provider. For example, if you want to place a trade for $1,000 worth of natural gas CFDs and your broker requires 10% margin, you will need only $100 as the initial capital to open the trade.
You can trade natural gas CFDs right here, right now. Just sign up at Capital.com and use our advanced web platform or download the best-in-class investment app to trade on the go. It will take you just 3 minutes to get started and access the world’s most traded markets.
Why trade US natural gas CFDs with Capital.com?
Advanced AI technology at its core: A Facebook-like news feed provides users with personalised and unique content depending on their preferences. If a trader makes decisions based on biases, the innovative SmartFeed offers a range of materials to put him or her back on the right track. The neural network analyses in-app behaviour and recommends videos and articles to help polish your investment strategy. This will help you to refine your approach when you trade natural gas.
Trading on margin: Thanks to margin trading, Capital.com provides you with the opportunity to trade natural gas CFDs and other top-traded commodities, even with a limited amount of funds in your account.
Trading the difference: By trading natural gas CFDs, you don’t buy the underlying asset itself. You only speculate on the rise or fall of the natural gas price. CFD trading is no different from traditional trading in terms of its associated strategies. A CFD trader can go short or long, set stop and limit losses and apply trading scenarios that align with his or her objectives.
All-round trading analysis: The browser-based platform allows traders to shape their own market analysis and make forecasts with sleek technical indicators. Capital.com provides live market updates and various chart formats, available on desktop, iOS, and Android.
Focus on safety: Capital.com puts a special emphasis on safety. Licensed by the FCA and CySEC, it complies with all regulations and ensures that its clients’ data security comes first. The company allows clients to withdraw money 24/7 and keeps traders’ funds in segregated bank accounts.
Businesses invested in US natural gas
Buying shares of natural gas exploration companies is another popular, albeit indirect way of trading natural gas. In times when the natural gas price is rising, investors in natural gas stocks can profit. A list of some of the key players in the natural gas market includes the following businesses:
- BHP Billiton
Anglo-Australian multinational mining, metals and natural gas company. The world’s 2nd largest mining company. Its shares are listed on the London (LSE), NEW York (NYSE), Johannesburg (JSE) and Sydney (ASX) Stock Exchange.
- Antero Resource Corporation
The leading US natural gas and oil company. It owns 485,000 acres in the southwestern core of the Marcellus Shale. The company’s shares are listed on the New York Stock Exchange (NYSE).
- Enterprise Products Partners
Based in Houston, TX, Enterprise Products is a prominent US natural gas and oil company. It owns 50,000 miles of pipeline. Its shares are listed on the New York Stock Exchange (NYSE).
- Phillips 66
Multinational energy company, located in Houston, TX. The shares of Phillips 66 are listed and traded on the New York Stock Exchange (NYSE).
- Cheniere Energy
Developer and operator of natural gas terminals. The company’s shares are listed on the New York Stock Exchange (NYSE).
Independent gas and oil company, engaged in shale exploration in the United States. The company’s shares are listed on the New York Stock Exchange (NYSE).
- Chesapeake Energy
US company that explores, develops and acquires properties, producing oil, natural gas and natural gas liquids. Chesapeake’s shares are listed on the New York Stock Exchange (NYSE).
- Sandridge Energy
US oil and gas company, producing oil, natural gas and natural gas liquids. The company’s shares are listed on the New York Stock Exchange (NYSE).
- Stone Energy
Independent gas and oil company that explores natural gas and oil in the Gulf of Mexico. Stone Energy’s shares are listed on the New York Stock Exchange (NYSE).
US natural gas price history
According to the historical natural gas price chart, the commodity spiked to record highs at the end of 2005, after Hurricane Katrina in August and Hurricane Rita in September disrupted production in the Gulf of Mexico at a time when natural gas supply was already tight. The devastation caused by the hurricanes left nearly 3 per cent of US gas production capacity shut in.
Throughout 2005, the NYMEX US gas price climbed from $6 to $9 per million British Thermal Units (MMBtu), as US production had been declining while gas-fired electricity generation increased. Although storage levels were relatively high, the plunge in output kept the supply balance tight during the winter, with the commodity’s price soaring to $16/MMBtu in December.
The price surged again in 2008 before the global financial crisis affected demand, as West Texas Intermediate (WTI) crude oil hit an all-time high above $148 per barrel at the height of the commodities investment cycle, hot weather boosted air conditioning use, and gas storage levels were below average. In July 2008, the value of natural gas skyrocketed to above $13/MMBtu, with expectations of an active storm season further supporting the market.
After natural gas prices peaked in the mid-summer, drilling activity, (that is measured by rig counts), had soared to a historical high, eventually leading to significant oversupply in the market. During the following winter, the price dropped below the $5/MMBtu level.
The ongoing weakness in the economy hit the market in 2009. In the meantime, new shale producers continued to ramp up output regardless of gas inventories in storage hovering around record highs. With consumption remaining low, the value of natural gas dropped to the lowest level since 2002.
Before 2008, there were only two years when global natural gas demand dipped: in 1975, after the first oil crisis, and in 1992, after the fall of the Soviet Union. Winter price rallies have since been smaller, with the continued expansion of US shale production ensuring ample supply.
In 2017, the US became a net exporter of natural gas for the first time in almost 60 years. The same year, the price of natural gas averaged at $2.99/MMBtu. In 2018, the figure stood at $3.15 $2.99/MMBtu. The commodity ended 2019 trading at $2.168.
From the 2005 high of $16/MMBtu, prices have fallen below $2/MMBtu in 2020, bottoming out at $1.596 in the first days of April. To follow the most recent ups and downs of the natural gas price, check out our live natural gas price chart.
What drives the price of natural gas?
The sources of the commodity are very rare and limited, and it takes much time to explore, develop and drill new ones. As a result, many natural gas consumers have limited consumption alternatives and cannot switch to new sources of fuel overnight. Therefore, even small shifts in the demand and supply of natural gas can cause significant price fluctuations.
The major natural gas price drivers are:
Natural gas production
Prices for natural gas strongly correlate with production volumes. When production increases, consumer prices fall, whereas declines in production force prices to rise.
Supplies in storage
During periods of high demand, gas supplies stored in underground facilities can influence the price. Storage facilities can provide natural gas when production and imports are not enough.
Natural gas strongly competes in price with other sources of power, including wind, hydroelectric, solar energy and coal.
Strong economic growth in the commercial and industrial sectors usually leads to greater demand for natural gas.
Severe weather conditions have a significant impact on natural gas prices. Storms and hurricanes can curtail drilling activity and cause supply shortfalls. Extremely cold winters may also increase the demand for heating and, therefore, drive the price of natural gas higher.
Despite a very long history of gas exploration, its production and reserves are relatively limited. Today, wells used for oil drilling may also produce natural gas. Therefore drilling of the two world’s major fuels often happen at the same time.
Liquefied natural gas (LNG) is the same gas, cooled to the liquid state. It is 600 times smaller than usual gas and can be transported to the places where pipelines can’t reach.
The top 10 regions, producing natural gas, include the following:
The major part of natural gas supplies is used to generate electricity and heat buildings. However, the list of 5 major applications includes the following:
- Electric power
A great deal of the global generation of electricity is produced with the help of natural gas.
2. Technological sector
Natural gas is widely used in the industrial sector for producing heat and power systems. As a raw material, gas is used to produce fertilisers, chemicals and hydrogen.
3. Residential sector
The majority of the world’s households use natural gas for heating buildings and water, drying clothes and cooking.
4. Commercial sector
In addition to heating buildings and water, natural gas is broadly used in refrigeration, cooling equipment and outdoor lighting.
Natural gas is used to operate compressors, which help to move it through pipelines.
Traders and investors should consider buying natural gas for the following reasons:
- Potential growth
Leading energy-sector players, such as Exxon Mobil and Total SA, put a lot of effort and funds into broadening the range of natural gas uses.
- Clean fossil fuel demand
Natural gas is considered a more environmentally-friendly fuel in comparison with coal or crude oil. It produces fewer carbon emissions and burns cleaner.
- Market expansion
Many new marketplaces could be opened due to the development of massive production of compressed natural gas (CNG), which can be transported without pipelines.