Think ‘Cold Weather’ Now – Natural Gas Investments Set to Produce Come February

August 23, 2010

It has been hot.  Really hot.  With record temperatures this summer, the last thing that comes to your mind is cold weather.  However, in order to reap the largest investment profits this winter, now is actually the best time to think about investing in energy.  Those that position themselves in the natural gas markets now will probably have the biggest bang for the buck when we are all scraping snow off our cars.

Fifty-five percent of homes in the U.S. are heated by natural gas, with electricity coming in second at 39%, says the American Petroleum Institute (API).  Additionally, 20% of the electric companies in the United States use natural gas, with 49% powered by coal.

With those kinds of numbers, natural gas is the obvious choice when it comes to profitable winter-related investments.  However, it is important to be aware of the other factors involved in natural gas markets, rather than solely focusing on the predictable rise as consumers increase the heat in their homes.

Unfortunately for natural gas investors, meteorologists are predicting a milder winter than that of last year.  Only the states in the West and South, along with Alaska, are predicted to have unseasonably-cold weather this year.  Getting in early could maximize your returns by securing the lowest price possible by maximizing your percentage of gain.

One more weather-related reason to enter the natural gas market now is the propensity for a large hurricane season in the Gulf of Mexico, an area which accounts for 12% of the United States’ natural gas production. Gas prices would immediately increase were one of the natural gas facilities on the Coast to be damaged by a hurricane.

Another consideration for energy investors is the fact that heating and electricity consumption are back to the levels attained before the current recession, yet a lack of consumer demand for products and services has industrial use still waning.  Unless this year’s winter weather is colder than expected, natural gas prices could remain lower, at less than $5.00 per 1,000 cubic feet.

All of the above factors encourage an early investment in natural gas.

Many investment consultants encourage investors to stay away from the highly-leveraged futures and commodity options, and instead, look into exchange-traded funds (ETFs) that track the natural gas market.

One option is the United States Natural Gas Fund, a non-diversified fund that invests directly in futures in order to track the price performance of the near-month NYMEX contract.

Another fund to consider is the First Trust ISE-Revere Natural Gas Index Fund.  Its underlying index tracks a portfolio of public companies which profitably explore for and produce natural gas.