Wednesday, May 6, 2009

The Cheapest Commodity Speculation

By Eric Roseman

Will natural gas make a comeback?

The odds are pretty good that bargain hunters buying natural gas at today’s bombed-out levels could probably double their money in under a year.

All thanks to the fact that we could soon be facing rising industrial demand and the possibility of supply outages caused by the looming Hurricane season. Not to mention that demand typically rises during the summer as individuals turn up the air conditioning.

There’s no doubt about it; the best risk-adjusted speculation now for commodities investors is natural gas. There’s no other commodity that’s this cheap, this battered and this oversold (see chart below.)

From its high in July of last year, spot natural gas prices have now collapsed a cumulative 74%. In 2009 prices have declined 37%. Crude oil – on the other hand – has been driven higher by big supply cuts by OPEC and Russia earlier this year, seeing prices rise 19% to $53 a barrel.

Over the last several months, natural gas has been hammered as the global economy suffers its worst recession since 1981-82 coupled with soaring gas inventories. Though an extremely volatile commodity, natural gas at these levels has historically been a strong speculation following big bear market crashes.

Canada is home to some of the best natural gas companies, including Encana (NYSE-ECA). The stock is more than 50% below its all-time high and pays a 3.6% annual dividend at current prices.

It’s time to ride natural gas.

At just $3.55 BTUs (British Therman Units) it’s hard to believe prices can head much lower. All the bad news is already baked into gas prices. It’s my favorite energy play right now in Commodity Trend Alert (CTA) – celebrating its 7th year this summer.

ERIC ROSEMAN
Sovereign Society Investment Director
Editor of Commodity Trend Alert
President, ENR Asset Management

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