Due to the polar vortex, natural gas prices are at an all time high. Investors who have followed the many articles on this site that were bullish have done very well in stocks such as Exxon Mobil (NYSE: XOM), BP (NYSE: BP), and United States Natural Gas (NYSE: UNG), the exchange traded fund for the sector. But investors should also prepare for natural gas prices to fall.
That should be inevitable as the record demand will not have the prices of natural gas futures rising forever.
It has certainly been rewarding as United States Natural Gas is up more than 8% for the quarter. Exxon Mobil, which is the leading producer of natural gas in the United States, has risen over 13% for that period. Strong around the world in natural gas, BP has also increased by more than 13% for the last four weeks. The dividend income from BP and Exxon Mobil increases the total return for shareholders.
For the long term, the future is bullish for natural gas.
It is replacing coal as a source of electricity in the United States, reported a recent article in The Wall Street Journal. Natural gas already heats nearly half of the homes in America. Nations around the world such as China and the Philippines have announced that the amount of natural gas being used will increase.
But for the short term, expect the price of natural gas to fall.
There are a variety of ways to react. Some may decide to ride out any decline, focusing on the long terms. That is an excellent strategy as long term investing is always wise. Others may decide to sell at the top; and then buy back after the price has fallen. Then there are those who will seek to profit even more if natural gas falls by shorting securities in the sector that should decline with the price.