Natural Gas: Buy the dip?

In July Goldman Sachs analysts stated that pressure on gas prices (Liquefied Natural Gas) remain high.

Mainly because of increasing demand from emerging countries like China.

Gas is made liquid by cooling it off to approximately minus 600 degrees Celcius. LNG takes 1/600th of the space of natural gas, and is easy to store and transport.

Qatar is the world's largest producer of LNG and will supply gas to Dubai from 2010 by diverting supplies from the Qatargas 4 project, the country's energy minister said.

Qatargas 4 is 30% owned by Royal Dutch Shell, the Anglo/Dutch oil company.

Qatargas also will supply gas to China from this project, diverting some of the fuel that it would have otherwise sent to Europe and the United States.

Low gas price is a good long indicator

Gas futures (tickersymbol QG) dropped severely from the peak in July from $13.50 to $9.

This might not seem much, however one $-point movement corresponds with $2,500. So, the $4.50 drop means a movement of $11,250. One futures contract has an underlying value of 1 million British thermal units.

The current weakness might be a good moment to go long. Investors who consider futures too risky, might buy call options.

At this moment the NQ-September futures contract is hovering around the low of March.

Investors seeking an edge, might buy oil contracts but also NQ futures. Investors are free to choose the products, like futures, options or other derivatives. It is important to read the contract specifications.