Natural gas stock prices move up and down with a wide range of factors.

The price of natural gas, like the price of oil, is highly volatile—and influenced both up and down by a wide range of factors. So it’s a bad idea to base investment decisions on predictions of future natural gas prices, and their effects on natural gas stock prices, because these predictions are simply not reliable.

However, you can profit nicely over long periods by investing in well-established or well-managed companies that are active in businesses that involve highly volatile commodities like oil and gas. You profit all the more if you buy these companies when they are cheap in relation to earnings and assets.

Here’s a list of the main factors that push natural gas stock prices up and down:

• An unusually mild winter can lead to lower withdrawals of gas from storage, leaving very high levels of inventory at the end of the heating season. High production levels brought on by continued record drilling activity have also pushed prices down.
• In the summer, prices could jump if it’s an unusually hot summer. This leads to greater demand for natural gas-generated electricity for air conditioning, or if hurricanes were to disrupt production. Hurricane season can last until the end of November in some parts of North America.
• If natural gas prices continue to stay low, energy companies will have less incentive to drill for natural gas. That will lead to lower supplies and, in the long run, higher prices.
• Around 60% of U.S. homes are heated with natural gas, and the clean-burning energy source is also used to generate electricity, another popular heating method. Most new electricity capacity brought on line right now is generated by natural gas, rather than oil, coal, water or nuclear. As well, as the price of crude oil increases, or remains high, some industries are switching to natural gas. This leads to more demand, which could cause the price of natural gas to rise.
• Many manufacturers and utilities are able to switch back and forth between using natural gas, oil and electricity. If oil gets cheaper than natural gas, this would in turn lower demand, and prices, for natural gas.
• Natural gas is produced around the world, but the simplest way to transport gas is through a pipeline. Canada, which supplies around a sixth of U.S. consumption, is the main source of imported gas for the U.S.
• Natural gas can be cooled into a liquefied form and transported by tanker. The U.S. at present has only limited capacity to import liquefied natural gas (LNG). However, as the technology of LNG liquefaction and shipping continues to improve, and if safety and environmental restraints are lowered, the U.S. could gain access to abundant supplies of gas from countries such as Russia.
• The price of natural gas could decrease even further if the U.S. federal government removes various regulatory barriers to exploration and development in areas of the U.S. such as Alaska, on wildlife preserves and on federal lands.

Bonus tip:

Here is one general commodity tip that is especially relevant to natural gas stock prices too: If people generally believe the price of a commodity is sure to go up, the reverse often happens. That’s because suppliers and users of the commodity also read the newspapers, and they both take steps to protect themselves and profit from the situation. The suppliers try to increase supplies, and the users try to become more efficient or find alternative commodities.

Do you keep any natural gas producers in your portfolio? Have they been profitable? Share your experience with us.