I’ve been trying to understand commodity trading and natural gas has me completely puzzled. I thought oil was volatile, but natural gas seems to move in ways that make no sense to me.
I know supply and demand must play a role, but what are the main factors I should be watching? Weather seems important since people use it for heating, but are there other things driving these wild price swings?
Also, why does it seem more erratic than crude oil? Is it just because the market is smaller, or are there fundamental differences in how these commodities behave?
Any insights would be really helpful. I’m trying to get a better grasp on energy markets in general.
Everyone overlooks production switching. Oil wells run steady but gas wells can adjust quickly when prices jump. This creates feedback loops that oil doesn’t experience. Also, grid operators buy gas on the spot during peak demand, paying anything to keep the lights on, which leads to big price spikes. Another issue is basis risk. Local gas prices can behave very differently from futures due to regional bottlenecks. I’ve seen basis spreads blow out by 500% while futures barely budged.
Storage reports drop every Thursday and they move prices like crazy. Plus LNG exports to Europe and Asia are driving massive demand right now.
Natgas is just way harder to store and transport than oil.
Natural gas is a beast compared to oil. Been trading both for years and natgas will humble you quick.
Weather is huge - one unexpected cold snap sends prices flying. I learned this the hard way during that February 2021 freeze when prices went completely nuts. Storage levels matter too. Low inventories heading into winter means any weather forecast change creates panic.
Infrastructure makes it wild. Pipeline capacity, export terminal maintenance, even a single facility going offline spikes prices. Oil’s got way more flexibility - ships, trucks, multiple pipelines. Gas is stuck in pipes.
Seasonal patterns are more extreme than oil. Summer cooling, winter heating. But renewables are screwing with these patterns now. Wind and solar create weird demand spikes when they’re not producing.
Market size is part of it. Less liquidity means bigger moves on same volume. Plus you’ve got way more local players - utilities, regional suppliers - compared to oil’s global market.
Honestly, I stick to small position sizes with natgas. The moves can be massive but they’re brutal if you’re on the wrong side.
Gas markets are way more regional than oil. You can ship oil anywhere, but gas needs pipelines or expensive LNG facilities.
Shale production from places like the Permian floods some areas while others stay tight. That’s why you see huge price gaps that don’t happen with crude.
Watch power demand closely. Hot days mean everyone cranks the AC, so gas plants fire up fast. Same thing happens when wind dies down and utilities need backup.
Check the futures curves too. Steep contango or backwardation shows where the market thinks supply problems are coming.
