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The kids are back in school, the mornings are cool and the solicitations for this winter's natural gas pricing strategies start coming through the mail and, unfortunately, over the phone.
The vast majority of the time, whatever savings one company offers is offset in their fees or fine print.
I've looked into a few of them in the past but, I've never switched and I don't plan on doing so this year.
The good news is that I have access to the same fundamental information used by the companies selling natural gas to us.
Putting this knowledge to work usually offsets any differences in my heating budget.
This year happens to be one of those years where many factors synchronize to produce a pretty clear view of what's ahead.
Through, fundamental, technical, seasonal and inter -market analysis it looks like natural gas prices may be bottoming and could be higher heading into this fall and winter.
In fact, there is strong evidence to support the idea that these could be the lowest natural gas prices we see for quite some time.
Let's start with the big picture and work our way down to an actual trading strategy.
First of all, the financial collapse and subsequent recession have hit the natural gas industry hard.
The number of natural gas rigs in operation has been cut by more than half, from a peak near 1,600 to current usage of around 700.
Typically, there's about a six- month lag between a decline in operational rigs and the production decline supporting market prices.
Considering the meager economic activity over the last year, it has taken longer than normal to work its way into the system, mostly because we've seen far less industrial demand than usual, both in direct usage and in power generation.
Seasonally, natural gas tends to bottom between the end of August and early September and then rallies through the end of October.
In seasonal market tendencies, this is one of the more clearly defined and concise market patterns.
This period also coincides with the peak of hurricane season.
September averages nearly four tropical storms per year and this is after accounting for a very quiet 2009 hurricanes season due, in part to the El Nino effect on Atlantic water temperatures.
Using inter-market analysis allows us to compare the value of substitute goods.
In this case, we can compare the price of crude oil to the price of natural gas to determine what price levels it becomes cost efficient for the markets' participants to shift their energy needs from crude oil to natural gas and vice versa.
The key to this type of analysis is using the proper pricing methodology.
The calculation of the crude oil vs.
natural gas spread is done using a ratio spread.
Dividing the price of natural gas, currently around $4 per million metric BTU's into the price of a barrel of crude oil at $77 gives us a ratio of 19.
25.
This ratio peaked at an all time high of 22.
7 in April of this year.
A spread ratio closer to 12 would represent an average relationship over the last few years.
The current mechanical factors that are triggering this trade are based on technical analysis and the tracking of the commercial traders through the Commodity Futures Trading Commission's weekly Commitment of Traders Report.
This report makes public the amount of buying or selling in the market for the accounts of various trading groups.
The commercial traders are the ones we track.
No one knows a market like the people whose livelihood depends on the production or, end line consumption of a given commodity.
In this case, the traders we are watching are the producers of natural gas and the end line users of large quantities like manufacturing facilities and power plants.
The fact that we have seen commercial traders increase their net holdings by more than 20% over the last six weeks tells me that they feel this market is undervalued and it makes sense on their balance sheets to be net accumulators of natural gas at these prices.
Finally, on the technical side of the market we've seen it "grind" lower.
I say that because it has been a very slow decline, with less and less interest the further the market has fallen.
The market is probing lower trying to washout the people who were early buyers.
However, rather than getting a washout, the market is finding new people waiting to buy it with each down tick in price.
This week, the market has started to turn back up above $4.
It appears that the end of August low may have been made around $3.
98.
With the market currently at $4.
21 this equals a risk of $.
23, which is $2,300 in the full size contract and $575 in the mini contract.
The reward side of the equation would be a test of the June high of $5.
53.
That would mean a profit of $13,200 in the full size contract and $3,300 in the mini contract.
Either way, it's more than enough to cover the bump in natural gas prices used to heat your home.
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