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Feb. 27, 2015, 12:52 p.m. EST

Is it finally time to buy natural gas?

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About James Cordier

James Cordier is founder and head portfolio manager of OptionSellers.com, where he has managed assets for a global client base since 1999. He is regularly quoted by national financial media including the Wall Street Journal, Barrons, Forbes, CNN Money and Dow Jones Newswires. He is a regular guest analyst on CNBC, Bloomberg Television and Fox Business News. In 2014, James launched his 3rd edition of The Complete Guide To Option Selling, published by McGraw-Hill. For more information, visit OptionSellers.com.

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By James Cordier

Natural gas can be a great market to trade this time of year. Hurricane season is still months away, and with U.S. gas demand met almost entirely from domestic production, the market is somewhat insulated from geopolitical events. This allows the market to take price direction almost exclusively from core supply/demand fundamentals.

There is no shortage of natural gas at the retail level right now. In fact, nat-gas prices plunging by 40% since the December highs indicate one thing: The market believes supplies are more than adequate to meet demand needs for the rest of heating season.

May 2015 Natural Gas

Natural gas prices have plunged by 40% since December. However, the demand cycle for gas changes in the spring.

For a larger chart, please click here .

Yet, investors not familiar with the demand cycles of energies may find it curious that supplies are now at their lowest levels of the year. How can this be? Doesn't low supply mean higher prices?

The answer is, yes and no. For low supply means little, if demand is lower.

The natural-gas demand cycle

In the futures markets, commodities take their price cues from demand at the wholesale level. And while retail demand for natural gas may be highest in winter, March wholesale demand is virtually nil.

…."heating season" as it is known amongst gas traders, ends this month. And April gives way to"injection" season.

This is because wholesalers (or distributors), spend the months leading up to demand season building their inventories. This means buying it from producers. Socking away inventories means rising demand at the wholesale level. This often serves as a bullish influence to prices.

The heating season for gas runs November-March. After winter, distributors begin rebuilding their stocks. Because this causes an increase in demand at the wholesale level, price strength is often the result. (Past performance is not indicative of future results. There is no guarantee a rise in prices will occur this year.)

For a larger chart, please click here .

Once supplies are deemed adequate, the wholesalers spend their time selling their gas to retail gas distributors. During this time, there is little demand at the wholesale level. That's where we are now.

But "heating season" as it is known amongst gas traders,ends this month. And April gives way to "injection" season.

During injection season, the cycle begins anew as wholesalers once again begin injecting gas into storage. This means increased demand from producers at the wholesale level and can often correspond with higher prices in the natural gas market during the spring. This is evidenced in the previous chart.

While there is no guarantee that higher prices will occur this year, we feel the fundamental supply draw appears to be occurring in line with past years(see chart below).

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