When trading commodities, you can choose between different categories of assets: agricultural products, precious metals, livestock, and energy. Within the last category, you can invest in Crude Oil, Gasoline, and Natural Gas, among others. When it comes to Natural Gas, the U.S. Energy Information Administration explains that “because of limited alternatives for natural gas consumption or production […] even small changes in supply or demand over a short period can result in large price movements“.
Under normal circumstances, if the supply of a commodity increases, prices will generally decrease, especially if demand remains unchanged. If demand increases, however, then prices tend to increase, especially if supply remains the same or decreases.
While colder temperatures usually increase both residential and commercial demand for Natural Gas, hot weather can also lead to increased energy consumption through greater use of air conditioning. This is because air conditioning systems often rely on Natural Gas burned by electric power plants.
Supply can be strongly affected by severe storms and hurricanes, as refineries often have to slow down or cease operations because of the threat to workers and facilities.
#2 Availability and Prices of Other Resources
Competition from other fuels can have an impact on Natural Gas prices. If there is a cheaper option on the market, large-volume consumers will most often choose it.
Usually, Natural Gas competes directly with Coal and Petroleum, with variations in the price of one commodity affecting the prices of the others. Demand for Natural Gas can then increase if the prices of other fuels rise. Conversely, when prices of other fuels fall, then the demand for Natural Gas will decrease, along with its price.
#3 Natural Gas Supply and Storage
The costs associated with storage facilities can also affect the final price of Natural Gas. Supplies held in underground storage fields can help meet any sudden increase in demand, which might not otherwise have been addressed by domestic production and/or imports. The amount of Natural Gas stored in the U.S. is usually higher between April and October, when demand is generally lower. As demand for heating rises from November until March, stores of Natural Gas are inevitably depleted, contributing to price increases.
#4 Economic Growth
When economic growth is strong, industries such as the pharmaceutical and industrial sectors will increase their use of Natural Gas to boost output. This also drives up the cost of this key commodity.
To take advantage of price changes in Natural Gas and other commodities, traders usually use a commodity trading brokerage firm. The UFX.com commodity trading platform offers an array of state-of-the-art features, allowing traders to benefit from professional trading tools and real-time charts to invest under the best trading conditions. It’s well worth considering the most important factors affecting the cost of Natural Gas, so that you can better anticipate and take advantage of price changes to make profitable trades.