The oil price this year makes last year look like a boom for the black stuff that isn't Guinness. Either way, 2015 (and 2016 thus far) was an annus horribilis managers of oil funds. But could it be an annus mirabilis for gas trading? Economist, Niels Jensen of Absolute Return Partners sees an argument for it being more than just hot air.
Natural gas prices are, unlike oil prices, not global in nature. Prior to the financial crisis most gas prices traded in a relatively narrow range. However, around 2010, as the global economy began to recover from the great recession, natural gas prices began to diverge quite significantly. The U.S. proxy (Henry Hub) has traded at the bottom of the range in recent years – almost certainly due to the shale gas revolution. The Japanese, on the other hand, have suffered from very high gas prices in the aftermath of the Fukushima disaster, when the Japanese closed all their nuclear facilities and, as a result, became more dependent on coal and natural gas to fuel their power plants.
Here in Europe we also appear to have paid ‘over the top’ for natural gas in recent years – at least when compared to U.S. prices. Apart from the annoyance associated with paying substantially more than our U.S. friends for heating our homes, the higher gas prices in Europe have a serious economic effect, and one that is not good for Europe. Natural gas is a major source of fuel for power plants all over the world, so higher natural gas prices here in Europe translate into higher electricity prices. Needless to say, electricity is a major cost in many industries, and therefore the price of it affects competitiveness.
Commodity trading strategies thrive on volatility. Natural gas could offer even better trading opportunities going forward than oil does, even if they both look quite interesting – provided the manager in question can go short as well as long.
One final thing. It may surprise many people, Russia is not the biggest proprietor of natural gas reserves in the world. Iran is. Germany has, for quite some time, been looking to reduce its dependency on Russia for natural gas supplies, upon which it is very reliant. With export sanctions now lifted, Russia’s influence on European energy politics could be greatly reduced, and volatility should drop as a result
Oil prices have fallen below $30 a barrel for the second time this week. It comes as concern grows that Iran could restart oil exports flooding a market already under intense pressure from global oversupply and weak demand. Brent crude fell more than 4.5% to $29.46 and US West Texas intermediate oil fell to $29.47 Iran could restart exports if the International Atomic Energy Agency (IAEA) reports it has complied with measures to curb its nuclear programme.