Word: gas
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Just as in the case of crude oil, supply and demand do not paint the full picture. As of Aug. 24, the U.S. Natural Gas Fund, an exchange-traded fund listed as UNG on the NYSE, held about 10% of the contracts in the October 2009 futures market traded on NYMEX. Combine that position with its over-the-counter swap holdings, and UNG held the equivalent of more than 50% of the October contract's open interest. In following its plan to buy and hold natural gas, UNG keeps rolling its position into the next futures month. In other words...
...equivalent position in the October futures contract amounts to over a trillion cu. ft. of gas. Given that the U.S. consumes an average of about 2 trillion cu. ft. of gas per month, UNG's position in the front month - at over half of that month's consumption - seems too large for a purely speculative fund...
...great pricing inefficiency arises because this natural gas speculator is following a predefined plan - and the plan is publicly known. Plus, it's a foolish one. A fund that invests in long-term natural gas prices is taking needless risk in placing significant money in the short-term futures market...
What's next for natural gas? Most likely, more weird volatility. As UNG continues to roll month to month, the front month will continue to get pounded down. The markets will not hit a true support on the bottom until traders know for sure how much storage the U.S. can actually handle. Whatever happens, this will be a volatile time for natural gas, as traders battle out prices amid uncertainty of true storage capacity. (See the video "The Truth About Solar Power...
...needs to be. China's powerful National Development and Reform Commission and the Development Research Center of the State Council sponsored a recent report suggesting that if it took a number of aggressive measures, China, now the world's largest greenhouse-gas polluter, could hit an emissions peak in 2030 and then begin winding down. But if global warming is to be reversed, more than emissions control will be needed. Just as essential will be the further, rapid development of clean energy. And if the Chinese decide that there's good money to be made in that...