Natural Gas Prices Shoot Up

Natural Gas Prices Shoot Up

It is the season for natural gas as it is every year around this time. This is the time when the commodity prices begin their slow climb up as the demand for the gas grows slowly and steadily reaching a peak towards the end of the year as the winter sets in throughout Europe and the commodity is needed for heating up homes.

Natural gas comes into the news around this time of the year annually as its prices shoot up, as it has happened this time as well. For traders, it could lead to a make or break situation as those who had bet against the price rise would have to shell out extra funds to ensure that their short calls on the commodity do not hit their margins but it is going to be a tough time for them over the next few months as a combination of a tough winter and the carbon emission targets that the industry and the countries have to meet every year is likely to increase the demand for natural gas.

A surge in demand is likely to increase the gas prices as countries rich in the commodity, like Russia, begin to play their political games while the countries in need, like the US and the UK, scramble to meet their demand. This is likely to be the situation for the next few years at least as the need to meet the emission targets has forced the countries to look for alternate fuel sources as they have to reduce their dependence on coal. Other sources like wind and solar are not enough to meet the demand and so countries have to depend on natural gas, which emits less than half the carbon that coal does.

Some of whom that have bet against the price rise are actually prop trading firms that have taken their positions to hedge against the price rise and they may represent very large natural gas companies. These companies have had to scramble to keep their positions open and they would hope that their stocks would be sold soon so that they can unwind their positions in the near future and realise their losses though they would be hedged by the actual sales.

The prices have spiked by as much as 25% in Europe and UK over the last few weeks and the demand in China and rest of Asia is also increasing. Panic seems to be setting in the markets as businesses are worried that they may not be able to get enough supply. The dependence on wind, nuclear and other sources is also highly dependent on nature and other factors with wind turbines being affected by lack of wind and nuclear sites undergoing maintenance or regular repair. All in all, it points to a tough winter, especially for the poor who can’t afford the high gas prices for heating their homes.

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