What Are Natural Gas Futures and How Do They Work? A natural gas future, like all commodities, is a contract that binds the buyer to buy a certain amount of natural gas at a specified price and date in the future. The 15th of the following month is chosen as the delivery date.
How do you go about purchasing natural gas futures?
- Trading shares and futures electronically rather than physically is what day trading natural gas entails.
- This sort of trading entails gambling on modest price variations in the natural gas futures market.
- These trades don’t reflect the “actual” price of natural gas, but rather daily, minute-by-minute supply and demand swings on the global commodities market.
- Natural gas futures can be traded directly on futures markets or through exchange-traded funds (ETFs) that trade on stock exchanges.
How do natural gas futures contracts work?
The settlements in the E-Mini Natural Gas (QG) futures contracts are directly derived from the settlements of the standard sized Natural Gas (NG) futures contracts, rounded to the closest marketable tick.
What is the purpose of futures contracts?
A futures contract is a legally enforceable agreement to acquire or sell a standardized asset at a defined price at a future date. Futures contracts are exchanged electronically on exchanges like the CME Group, which is the world’s largest futures exchange.
Are Natural Gas Prices Set to Rise in 2022?
According to our newest Short-Term Energy Outlook, we expect marketed natural gas production in the United States to climb to an average of 104.4 billion cubic feet per day (Bcf/d) in 2022 and then to a record-high 106.6 Bcf/d in 2023. (STEO). Around 97 percent of production over the next two years will originate from the Lower 48 states (L48), excluding the Federal Offshore Gulf of Mexico (GOM) (GOM). The remaining 3% will come from Alaska and the Gulf of Mexico.
The wholesale spot price of natural gas at the U.S. benchmark Henry Hub will average $3.92 per million British thermal units (MMBtu) in 2022, an eight-year high, and $3.60/MMBtu throughout 2023, according to our estimates. We foresee ongoing increases in drilling activity and natural gas production in the United States as a result of these high prices.
Legacy production in the L48 is expected to average 83.2 Bcf/d in 2022 and reduce 21% to 65.9 Bcf/d in 2023, according to our prediction. In 2022, new well production will add 18.1 Bcf/d, rising to 37.8 Bcf/d in 2023, balancing diminishing legacy well production and increasing total L48 marketed gas production to 103.7 Bcf/d in 2023.
The Appalachia region in the Northeast, the Permian region in western Texas and southeastern New Mexico, and the Haynesville region in Texas and Louisiana will all contribute to increased natural gas production in the United States.
According to our STEO prediction, Haynesville output will increase by 1.6 Bcf/d yearly on average during the next two years. Drilling in the Haynesville region remains cost-effective, even with deeper and more expensive well development, as long as natural gas prices remain high. Haynesville also attracts operators due to its higher well productivity and closeness to liquefied natural gas export ports and significant industrial natural gas customers along the US Gulf Coast.
The Permian region is expected to add 2.2 Bcf/d to production increase in 2022 and 1.2 Bcf/d in 2023, according to our estimates. Our projection for the West Texas Intermediate crude oil price stays over $60 per barrel, prompting operators to ramp up oil-directed drilling in the region, resulting in increased associated gas output.
In recent years, the Appalachia region has contributed the most to domestic natural gas production in the United States, contributing about one-third of L48 output annually since 2016. Despite the fact that production growth has slowed in recent years due to reduced drilling activity and emerging pipeline capacity constraints, Appalachia well-level productivity has increased, partially offsetting the drilling reduction. Production in the Appalachia region is expected to increase by 0.3 Bcf/d in 2022 and 0.7 Bcf/d in 2023, according to our estimates.
Is it possible to trade natural gas futures?
The Henry Hub Natural Gas futures contract (NG) is the world’s third-largest physical commodities futures contract by volume, and it’s frequently used as a national benchmark price for natural gas, which is becoming a more important global and domestic energy source.
Natural gas futures are traded nearly 24 hours a day, six days a week, and can be utilized for hedging or speculation. Hedgers can manage risk in the highly fluctuating natural gas price, which is driven by weather-related demand, by trading natural gas futures.
Because natural gas futures are significantly influenced by supply and demand, it’s critical to understand the elements that can affect the market, particularly extreme hot or cold weather and the consequent energy use, which could cause supply interruptions. Also, new natural gas fields may be discovered, causing market structural changes.
Is natural gas a worthwhile investment?
Is it wise to invest in natural gas? Due to oversupply and fluctuating pricing, natural gas investment has been difficult in recent years. Demand for the cleaner fuel, on the other hand, is expected to increase in the future years, benefiting natural gas supplies. As a result, it could be a sound long-term investment.
How can I trade natural gas in the United States?
A futures contract, such as the CME’s Henry Hub natural gas futures contract, is the most frequent vehicle for traders to take a position on natural gas. With a futures contract, traders agree to supply a specific amount of natural gas at a predetermined price at a future date. This does, however, imply that the trader may have to accept delivery of the asset at some point.
Is Henry Hub identical to NYMEX?
The Henry Hub is a natural gas pipeline in Erath, Louisiana, that serves as the official delivery place for New York Mercantile Exchange futures contracts (NYMEX). Sabine Pipe Line LLC owns the hub, which offers access to many of the country’s major gas markets. The Transcontinental, Acadian, and Sabine pipelines are among the four intrastate and nine interstate pipelines connected to the center.
What factors influence natural gas pricing?
If your natural gas pricing is based on $ per 1,000 cubic feet, multiply it by 10 and input the result above. For example, if your natural gas bill is $14.00 per 1,000 cubic feet, divide by 10 to get $1.40 per therm.