Natural Gas: How Low can you Go?

United States Natural Gas Fund, LP (NYSE:UNG)

With heavy weights like Exxon Mobil (XOM) saying natural gas demand should pick up next year there's only so long prices can stay low.  The U.S. Natural Gas Fund (UNG) is trading at an all-time low.  Could it be finally time to buy at the bottom?

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The U.S. Natural Gas Fund (UNG) hit another new low today reaching $7.29 a share.  This year the UNG has been a lousy investment, the ETF is down 38% and 25% of that fall occurred in the last 3 months.   One look at the chart the underlying bearish downtrend is enough to make UNG investors run for the hills.  The big question is how long will natural gas prices continue to plunge and more importantly will the UNG stop falling?

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UNG

What peaked our interest to believe the bottom may be finally approaching are the comments this week from one of the biggest corporations on the planet, Exxon Mobil (XOM).  ExxonMobil (XOM) said in the company's 2012 energy outlook report (Dec 8th) that natural gas demand could increase about 60% from 2010 to 2040 with particular strength in the Non Organisation for Economic Co-operation and Development countries of the Asia Pacific region.

Despite how abundant natural gas is these days we are facing a potential cold winter, this could put an end to the current free fall in natural gas prices.  Should a bitter winter start up across the U.S. it could eat away very quickly at the recent natural gas stockpil. Even a milder decline in temperatures during the winter months of December and January could increase demand to the point of exceeding supply. Once this occurs, natural gas prices can no longer be held back by storage capacity, allowing for a recovery in the January and February futures contracts.  Add in a little demand forecast by say Exxon Mobil and the UNG could finally start to move in the opposite direction.

Bottom line: This is highly speculative but it would seem more risky at this point to continue to short the UNG and natural gas prices betting the decline can keep going.  With the UNG trading at an all-time low, very soon could be the time to bet on a rebound.

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