Of course, a great profit strategy is to invest when an asset’s price is "beaten down", but has clear potential to rise. One commodity fits into this category and is hot in the making right now: natural gas.
Globally, governments are on an aggressive drive to cut carbon emissions. This bodes well for natural gas. It’s the cleanest-burning fossil fuel. And in the mission to reduce carbon emissions, natural gas will become more popular.
The chart below shows the one-year performance of the First Trust Natural Gas Index Fund (ticker: FCG), an ETF of companies that derive revenue from the exploration and production of natural gas. This year, FCG is up by 24%. Investment in natural gas tends to rise when oil prices go up - when oil becomes expensive, cheaper energy sources are favoured. You can see that the ETF surged by close to 30% in May alone.
Natural gas is on track for higher demand...
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Source: Yahoo Finance
Last year’s record-high gas production and the sharp cut in industrial demand led to a severe oversupply. It pushed gas prices below the $4/MMBtu mark this spring from their July 2008 peak at above $13.
But this will change.
Another factor that could lead to rising prices is the low ‘rig count’ - the number of rigs drilling for natural gas. Falling natural gas prices have led to a 57% fall in this figure to 687 from a Sept-08 peak of 1,600. This puts pressure on supply... and should lead to a favourable correction in gas prices.
Also, as oil prices surge, gas becomes more popular. And since its outlook is linked to industrial demand, expect to see this environmentally-friendly fuel rally when the economic recovery is here.
For another informative article about energy, written by our penny shares expert, please click here
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