Looking at the trend of American natural gas market this year, it can start from 2022, when the conflict between Russia and Ukraine caused the imbalance between global natural gas supply and demand, which caused the natural gas price to soar, and then returned to normal in 2023. This process is expected to continue in 2024 and continue to dominate the natural gas price movement.
So what problems should we pay attention to in the process of trading natural gas in 2024?
1. Macroclimate and microclimate: Macroclimate is what we usually call the global medium and long-term climate pattern, such as the obvious El Ni ñ o climate pattern last year. Microclimate is the occasional sudden change of climate in the macro climate environment, such as the temporary cold in the United States after the unprecedented warm December in 50 years.
According to research data, there is a 60% chance that the current El Ni ñ o climate pattern in the United States will end in April this year. At present, there are no research results on climate patterns in spring and summer this year.
Whereas the climate reflects trends that may affect natural gas prices, the microclimate is merely a technical rebound that may result in prices.
2. American natural gas inventory: Natural gas inventory is another important factor affecting natural gas prices. At present, American natural gas inventory has reached more than 13% of the five-year average (Figure 1). Under such inventory conditions, the probability of price inflation is relatively low.
Figure 1: US natural gas stocks reach more than 13% of the five-year average
3. Changes of implied volatility in natural gas options market: At present, the premium of implied volatility to historical volatility in CME group's natural gas options market is different in different months, but the general trend is shrinking.
For option traders who use put option insurance premiums as the main means of profit, the profit rate may decrease (Figure 2, in which the white line represents implied volatility and the orange line represents historical volatility).
Figure 2: Premium of implied volatility to historical volatility in natural gas options market
4. The impact of possible geopolitical crisis on natural gas prices: Although there is no geopolitical factor that can affect natural gas prices at present, we as traders should not forget this factor lightly.
At present, CME group's natural gas derivatives market is one of the largest natural gas derivatives markets in the United States, which is divided into two parts: futures market and options market. The futures market mainly trades four different natural gas futures contracts, including spot-handed natural gas futures (product code: NG), cash-settled natural gas futures (HH), mini natural gas futures (QG), and newly launched mini natural gas futures (MNG) in November last year.
The differences between these four natural gas futures contracts lie in: First, the scale is different. Standard natural gas futures contracts for spot handover and cash settlement are both priced at 1,000,000 BTU x US $10,000, while mini natural gas futures for cash settlement are priced at x US $2,500. In other words, four mini natural gas futures contracts are equal to one standard natural gas futures contract. Micro natural gas futures contract is the futures price × 1000 US dollars, that is to say, 10 micro natural gas futures contracts are equal to one standard natural gas futures.
Second, the settlement methods are different. Standard natural gas futures contracts for spot handover hand over Henry Hub natural gas spot on the settlement day, while standard natural gas futures, mini natural gas futures and mini natural gas futures contracts for cash settlement are settled in cash on the last day of the contract.
However, the above four natural gas futures contracts have enough liquidity to trade every day.
The natural gas options market is divided into standard options and weekly options. Standard options are divided into American options handed over from spot (product code: ON, code used by some domestic trading platforms: NG) and European options settled by cash (product code: LNE, code used by some domestic trading platforms: NGE), both of which have very good liquidity.
All in all, two dollars is a price chassis that has been tested for many years for American natural gas prices, and the price risk of American natural gas is still on it.
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